Downsizing is a hot topic for older Australians at the moment because the federal government is encouraging it. It’s a strategy with bipartisan support, so it’s likely to remain in place long term regardless of which political party is in power. Read on to find out about downsizing in Australia.
What is downsizing?
Downsizing is a term used to describe moving out of a larger home into a smaller one. It can be especially suitable for older Australians whose children have grown up and moved out of the family home. In other words, for empty nesters who no longer need to have a large home and all the associated hassles and ongoing maintenance work that a large home requires.
The benefits of downsizing
You can gain a wide range of benefits when downsizing as listed on the Money Smart government webpage, including these three key advantages:
- more money to spend on other things if you sell a large home and downsize to a cheaper one.
- cheaper insurance and energy bills due to the home being smaller.
- more time to spend on things you enjoy doing rather than on maintaining a large home both internally and externally. Many older Australians find downsizing liberating! No more big yards to mow or unused rooms to keep clean as they get older.
Why is the government encouraging pensioners to downsize?
There is a range of reasons why the federal government is encouraging pensioners to downsize:
- many property markets in Australia have low housing stock available for families. This is contributing to the current housing crisis.
- some property markets in Australia have an oversupply of smaller accommodation options like apartments and townhouses. This type of accommodation is ideal for downsizers.
- pensioners who free up funds tied up in their family homes will have more income available to spend, stimulating the economy.
How is the government supporting pensioners to downsize?
There are two major initiatives designed to encourage pensioners to downsize.
- when in power, the Morrison government introduced legislation that enabled downsizers aged 60 and above to contribute up to $300,000 from the sale of a family home into their superannuation. These funds can boost a downsizer’s income earning potential from their super fund, and super income and lump sum withdrawals are tax-free for most Australians over the age of 60.
- the current Albanese government is about to introduce the Social Services and Other Legislation Amendment (Incentivising Pensioners to Downsize) Bill 2022 into parliament. When passed, this legislation will exempt the proceeds of the sale of the family home from the Age Pension assets test for two years (currently, they are only exempt for one year). In addition, the deeming rate on the proceeds would also be lowered from 2.25% to just 0.25% for the purposes of the Age Pension income test. Both of these measures will help to ensure that the Age Pension rate won’t be lowered for older Australians due to their decision to downsize.
How many Australians are downsizing?
According to current Social Services Minister Amanda Rishworth, in a media release dated 7 September 2022, more than 8,000 Australian pensioners downsized last year and took advantage of the opportunity to top up their super funds.
It is hoped that thousands more will be encouraged to downsize once the additional legislation is passed to ensure that older Australians won’t have their Age Pension rate lowered due to the proceeds of their home sale and their decision to downsize.
How we can help
If you’d like to explore your downsizing home options, check out our range of retirement villages and land lease communities across Australia. Both buying and leasing options are available.