The declining rate of home ownership in Australia is becoming so serious it could undermine the superannuation system, a new report warns.
If present trends continue, fewer Australians will be able to support themselves in retirement without relying on the age pension, the report says. Future governments will face growing pressure to increase the level of the age pension and commonwealth rent assistance.
The new report, No Place Like Home: The Impact of Declining Home Ownership on Retirement, was written by the economist Saul Eslake. It was commissioned by the Australian Institute of Superannuation Trustees (AIST), a peak lobby group for not-for-profit super funds.
The report says the declining rate of home ownership poses a threat to Australia’s public finances because Australia’s relatively parsimonious retirement income system was built on the assumption that the “overwhelming majority” of retirees would not have housing costs because they would have paid off their mortgages. .
The rate of home ownership in Australia, which peaked at around 73% in the mid-1960s, has declined to roughly 68%, with half of the decline occurring since 2001.
The report says the proportion of home owners who own their homes “outright” – who have paid off their mortgages – has declined even more, from a peak of 61.7% at the 1996 census to 47.9% at the 2011 census.
Eslake says declining rates of home ownership among people of working age (especially those in their late 20s and early 30s), and a rising proportion of home owners who still have mortgage debt outstanding (especially in their late 50s and early 60s), means a greater number of retirees will be wanting to use their super savings to pay off their homes in coming decades.
More retirees may end up being wholly or partially dependent on the age pension in the future and more may be forced to spend a greater proportion of their income on rent.
“In other words, there is a clear link between deteriorating housing affordability and the adequacy of Australia’s current retirement income system,” he warns.
“Not only do the emerging trends in Australia’s housing market spell trouble for those who will be entering retirement over the next three or four decades: they also spell trouble for Australia’s public finances and for the governments who will preside over them.
“These prospects should encourage Australia’s current generation of political leaders to give more thought to what can and should be done to ameliorate or reverse the long-term decline in home ownership rates among people currently aged between their mid-20s and their mid-50s.”
The report also argues there is “little doubt” that first home buyers have been “squeezed out” of the housing market by investors over the past 25 years.
“In 1991-92, both groups accounted for around 17% of total lending for housing (with the balance being for existing home owners ‘trading up’),” the report says. “By 2014-15, the share of housing finance commitments going to investors had risen to 53%, while that going to first home buyers had declined to less than 10%.”
It emerged last week that Malcolm Turnbull has been considering plans to improve housing affordability by allowing first home buyers to dip into their super for their deposits.
But Eslake says the proposal would lead to higher house prices, in a market where the demand for housing exceeds the supply, rather than higher rates of home ownership.
It would also result in lower retirement savings for those who took advantage of the policy, he says.
The report argues state and federal governments could improve the ability for people to become home owners by increasing the supply of homes and affordable rental housing, and using the tax system to reduce competition between first home buyers and investors.
It recommends abolishing or modifying negative gearing and the capital gains tax discount; requiring regulators to force the reduction in growth in lending to property investors; further tightening rules for foreign investors; and pressuring state governments to exempt pensions from stamp duty when “downsizing”.
