Australia’s booming housing market has made downsizing an increasingly lucrative tactic to help over 50s secure their financial future in retirement, a new report by Downsizing.com.au has found.

The report shows that the average cash released from selling to downsize from a house to a retirement village in 2020 was $286,810. This compares to a cash release of $211,550 in 2015.

This financial improvement has come about, in part, because median house prices have increased more rapidly than the price of average retirement village two-bedroom units.

Between 2015 and 2020, the median price of houses which sold in the same neighbourhood as retirement village units jumped by 25.7 per cent, compared to 20.3 per cent for the retirement village units.

In addition, during this period, retirement village units have generally been about two-thirds the price of houses in the same postcode.

Downsizing.com.au CEO Amanda Graham said the report showed that downsizing had increasing potential to allow over 50s to release equity from their home and therefore boost their retirement income and enhance their later life security.

“Traditionally, people have downsized because of lifestyle reasons or because they want to reduce their amount of home maintenance,” Ms Graham said.

“Surging Australian house prices, and the rise in mortgage levels, have meant that a new breed of downsizers are also motivated to release equity from their home to help set themselves up for retirement. This trend should be welcomed and encouraged.

“The good news, as our report has found, is that the average equity release amount has escalated over the last five years.”

Policy and regulatory issues

The report also identifies policy and regulatory barriers which may prevent some home owners from downsizing to a more suitable property and improving their financial position at the same time.

This includes State Government stamp duties, restrictions on housing supply and the operation of the aged pension assets and means tests.

The report’s release comes after the publication of the Australian Government’s Retirement Income Review in November 2020, which stated that home ownership and equity release was an important but under recognised element of retirement security.

The review found that very few retirees are using the equity in their home to improve their standard of living.

Ms Graham said it was in the national interest for the Australian and State Governments to examine and implement policies which assist downsizers to take advantage of this significant equity release potential.

“Equity release has a potentially significant but largely untapped role strengthening the retirement position of older Australians,” Ms Graham said.

“The NSW Government says it is looking at stamp duty reform to help remove one potential equity release barrier for downsizers, while the ACT Government has committed to reducing stamp duty rates which apply when a home is purchased.

“We’d certainly welcome any activity to address the other barriers identified in this report.

“Downsizing.com.au thanks the Retirement Living Council for supplying additional figures to allow this previously unpublished key data in this report to be compiled and published.”

The report focussed on retirement villages only because there were published nationwide figures available about village dwelling prices to support credible average equity release calculations.

“There are of course many other types of homes that over 50s typically downsize into, including general apartments and villas and land lease communities, and these findings are broadly applicable to these homes as well,” Ms Graham said.

Download the report here

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