The supply of downsizing-friendly housing would be boosted but all homeowners would face an annual levy and pensions for asset-rich retirees would be cut and under new proposals by a Melbourne-based public policy think tank.
The Grattan Institute has released a detailed report titled “Housing affordability: re-imagining the Australian dream.” Backed by large companies, law firms and philanthropists, the Grattan Institute was formed in 2008 and says that it is “an independent think-tank focused on Australian public policy.”
The report looks at housing affordability solutions for Australians, particularly younger Australians. But it also has plenty to say about housing and older Australians.
On the supply issue, the report is clear.
It says building an extra 50,000 homes a year for a decade could leave Australian house prices 5 to 20 per cent lower than what they would have been otherwise.
It calls on State governments to fix planning rules to allow more homes to be built in inner and middle-ring suburbs of our largest cities. This would include allowing more small-scale urban infill projects without council planning approval and denser development ‘as of right’ along key transport corridors.
The report says increased supply would benefit downsizers.
“When (downsizers) do move, their choice is primarily driven by lifestyle reasons and difficulty in maintaining a large house and garden. They look primarily for a home that will be easier to maintain, and that is close to facilities and their networks.
“Financial considerations are much less of an issue on their minds.
“And when people do not downsize, their primary problem is usually that they cannot ‘downsize in place’ – they can’t find suitable housing in the same local area. These considerations typically dwarf the financial trade-off between more free cash, but a lower age pension. Stamp duty costs were a barrier for only about 5 per cent of those thinking about downsizing.”
A recent survey by Downsizing.com.au supports the claim that lifestyle reasons and supply issues are critical when it comes to the motivations behind downsizing.
However, despite stating that financial issues are not a factor in downsizing, the report then goes on to somewhat bizarrely argue that the aged pension should be cut for people who own their own home, proposing significant changes to the pension asset test.
“Including more of the value of the family home in the Age Pension assets test would improve the allocation of housing assets a little, make pension arrangements fairer, and contribute between $1 and $2 billion a year to the budget,” the report says.
“Under the current rules only the first $203,000 of home equity is counted in the Age Pension assets test, and the remainder is ignored.
“Inverting this so that all of the value of a home is counted above some threshold – such as $500,000 – would be fairer and contribute to the budget.
“It would also encourage a few more senior Australians to downsize to more appropriate housing, although the effect would be limited given that research shows downsizing is primarily motivated by lifestyle preferences and relationship changes.”
It’s a very strange argument. In essence, a report on housing affordability is arguing in favour of cutting the aged pension for asset-rich retirees, not to improve affordability but to repair the budget.
Separately, the report also argues that State governments should abolish stamp duties and replace them with a general property tax, as the ACT Government is doing:
“Stamp duties on the transfer of property are among the most inefficient of taxes - they discourage people from moving to housing that better suits their needs so that the housing stock is used more efficiently.
“The misallocation of housing stock is now obvious in Australia: spare bedrooms are much more prevalent in owner-occupied dwellings – where housing moves are constrained by stamp duty – than in the private rental market where they are not.
The simplest way to reform state land taxes would be to shift to a progressive land tax assessed on the value of each property owned, rather than on the combined value of an owner’s total landholdings.”
This is an interesting idea – the benefit for downsizers is that they wouldn’t need to pay a huge slab of stamp duty when buying a new property. The problem, of course, is that instead retirees and all other property owners would pay a new annual levy.
The report also says renters should have greater security and that the Australian Government’s recent superannuation incentives will only benefit the wealthy.
It is a report which is set to start furious debates right across Australia.
To date, there is no sign that any level of government, State or Federal, will be picking up any of these detailed recommendations, but the report certainly has had blanket media attention and is driving a national debate.
Amanda Graham is the Co-Founder and Co-CEO of Seniors Housing Online and Downsizing.com.au