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To downsize or not: the rising cost of the great Australian dream; The number of older Australians who live alone in large homes is startling
Topic Started: 21 Sep 2013, 12:34 PM (697 Views)
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To downsize or not: the rising cost of the great Australian dream

September 21, 2013
Peter Mares

One of my regular neighbourhood walks takes me past a fine example of Queen Anne architecture. The elegant family home has three sculptural red-brick chimney stacks towering from its multi-gabled roof, the horizontal ridge lines capped with decorative terracotta ornaments. Although the house is well maintained, its charms have begun to look slightly faded in recent years. The paint on the woodwork is no longer fresh and a front garden that was once cared for now looks as if it is simply maintained.

''Mary'', who owns the house, is in her late 80s and has lived there alone since the death of her husband several years ago. In popular parlance, she is the archetypal little old lady rattling around in the old family home. In the language of public policy and economics, Mary is an ''over-consumer'' of housing and her choice of dwelling is ''inefficient''. Put another way, she is helping to reduce supply and inflate prices.

The number of older Australians who live alone in large homes is startling. An analysis of 2011 census data reveals that of homeowners aged 70 and over who live alone, 62 per cent have a house with three or more bedrooms. That adds up to 238,078 houses with at least three bedrooms occupied by just one person. Among houses owned by older couples (with at least one partner aged over 70), 82 per cent - or 332,752 houses - have at least three bedrooms.

Is it time to change policy?

The phenomenon appears certain to become much more pronounced. Treasury has projected that the share of the population aged over 65 will rise from 13 per cent to 23 per cent by 2050 (an increase from 3 million to more than 7 million people). Within that group, the number of ''very old people'' - people aged 85 or more - is expected to more than quadruple to 1.8 million. Since close to 80 per cent of Australians aged 65 or older own their own homes, that means legions of Marys are potentially ''rattling around'' in large houses.

In addition, Federal Parliament recently passed the final legislative elements of the Living Better, Living Longer package, which will see aged-care policy and funding focus even more on providing support to people in their homes, rather than in residential facilities. This welcome reform could have a downside if it encourages older people to stay in houses that are too big for them and that they can no longer keep in good condition. The costs of delivering aged care to the home would then rise rapidly as service providers, and by extension governments, are called on to provide more cleaning, repairs and modifications.

That trend will also exacerbate the shortages and cost pressures that already strain our housing system. And it will delay the redevelopment of the middle rings of Australian cities, where there is great potential to increase affordability and sustainability by replacing ageing houses on large blocks with more diverse, medium-density dwellings.

But it would be presumptuous, even draconian, to insist that someone like Mary should downsize. People of all ages live in houses that have many more rooms than occupants. Those spare bedrooms are often needed for visiting friends and family, as home offices, studios or music rooms, or to provide a refuge when sleep is impossible because a partner is snoring. The big backyard is needed for pets, for outdoor entertaining, for children to play in, or for growing vegies.

One other factor that we may fail to recognise, or at least admit to ourselves, is that an owner-occupied house in Australia is a highly tax-effective vehicle for accumulating, storing and passing on wealth. Under such conditions, it is hardly surprising that those of us who can afford to do so often buy houses that are larger than we might actually need.

The idea that it is inappropriate for older people to continue living in large houses is known as ''the mismatch argument''. Crudely put, it suggests older people don't know what is best for them and therefore become trapped in dwellings that are too large and too expensive to heat and cool, keep clean and maintain.

The argument takes no account of how older people might use and enjoy their extra rooms for hobbies, professional activities, accommodating guests, study, entertaining or hosting family gatherings - activities that often make a major contribution to their wellbeing. The argument also has a moralistic undertone, a suggestion that older people are denying others, especially young families, the chance to live in an ideal home.

On an individual level, Mary's choices are entirely a personal concern. At a societal level, however, the sum of our private choices can add up to a major problem.

The point is not to tell Mary or anyone else how to live their lives, but to recognise that our choices are framed by policies that create incentives and disincentives. If these policies deter older home owners from downsizing, then this acts as a brake on supply and keeps housing costs high.

If government policies deter older home owners like Mary from downsizing, then their choices are potentially being constrained rather than expanded. Someone who ''over-consumes'' housing is apt to ''under-consume'' other goods and services, particularly if he or she is on a fixed income, and could end up shivering frugally in a cold, rundown but spacious house, rather than turning on the heating or calling in a plumber.

A range of newer financial instruments - including reverse mortgages and partial sales - can enable older home owners to convert some of their equity into cash without moving house. But in a paper for the Australian Housing and Urban Research Institute, Rachel Ong and her co-authors note that retired home owners typically ''appear to view housing wealth as precautionary savings that are only rolled out in extreme circumstances''.

So why don't more people downsize?

There are two answers to this question - the first is to do with the type of housing we build, the second with the way we tax it.

With almost three-quarters of occupied private dwellings in Australia having three bedrooms or more, people who want to move to a smaller house have limited options, especially if they want to stay in the same locality. Zoning and planning rules often exacerbate this situation by inhibiting the construction of more diverse housing stock. And those rules could tighten up in many areas under Victoria's new zoning system, which gives local governments extensive powers to determine what kinds of development can take place in different locations.

Read more: http://www.theage.com.au/national/to-downsize-or-not-the-rising-cost-of-the-great-australian-dream-20130920-2u5h8.html
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willy_nilly
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LOL....seems people are listening, or journos visiting here, given the thread http://australianpropertyforum.com/single/?p=8428902&t=9959578

Family Assist Part S (carrots and sticks), would allow a sole pensioner be able to sell up their PPOR and the proceeds remain asset test free for the pension test, if they live with another 'family' and put a majority of their investments into Govt Bonds or an approved govt savings account. The rent the 'family' receives would be tax free and the 'family' would as get a $5k govt grant, to help house the pensioner.

At the same time a Land Tax needs to be introduced to create the 'stick'.

The 'family' could be young FHB and need not have a direct family relationship with the pensioner.
It will be a bad refelection on our society if we allow 28% of our homes to end up as lone occupants. Now at approx 24%. Ageing in place will be a social disaster. Isolation and loneliness is state we should find unacceptable for an advanced society.

http://www.talkfinance.net/f32/25-our-homes-lone-occupants-9327/

From the ABS link on the above thread, Figure 7.48 shocks me.....
http://www.abs.gov.au/AUSSTATS/abs@.nsf/0/916F96F929978825CA25773700169C65?opendocument

We certainly have the spare bedrooms for Family Assist Part S

Housing utilisation
All households (000's)
More bedrooms needed 218.5
No extra bedrooms needed 1491.0
1 bedroom spare 2857.1
2 or more bedrooms spare 3359.5
All households 7926.2
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/3415.0Main+Features10June+2011
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Trojan
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Alex Barton
21 Sep 2013, 12:34 PM
Given its location in a quiet, tree-lined street close to a park, shops and transport, Mary's home would be worth more than a million dollars. If she swapped it for a $500,000 unit and saved the difference then she might well find herself ineligible for the age pension.
If you think carefully about it, I'm sure these pensioners in million dollar houses plays a part in explaining why a person on median salary can't afford a median home as their first home ...
After all, that's how averages work ...
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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genX
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Given its location in a quiet, tree-lined street close to a park, shops and transport, Mary's home would be worth more than a million dollars. If she swapped it for a $500,000 unit and saved the difference then she might well find herself ineligible for the age pension.
If she swapped it for a 500K unit and put the rest into a variable annuity or income guarantee product she would have $25,000 tax free income per year for the rest of her life. Presumably she wants the kids to inherit the house, otherwise why would she take a $6000 per year income haircut to suck the public purse dry? Oh wait, that is her right.
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themoops
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Treasury has projected that the share of the population aged over 65 will rise from 13 per cent to 23 per cent by 2050 (an increase from 3 million to more than 7 million people). Within that group, the number of ''very old people'' - people aged 85 or more - is expected to more than quadruple to 1.8 million.


So they're concerned about gen x'ers being a pain in the arse when they're old, but not the boomers now. One of the reasons why there'll be a lot more of us is because of the mass immigration that is very much kept out of debate.

Scum.

Anyway, sure, two thirds of houses seem to be owned by ignorant old farts but loose credit and government intervention is by far and away the biggest thing making houses expensive.

Fuck the media.
Edited by themoops, 21 Sep 2013, 05:18 PM.
stinkbug omosessuale


Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments.
Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck!
See here
Property will be 50-70% off by 2016.
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Don't Buy Now!
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Granny is trapped. She would be much better off in a modern single level house in the same suburb on a small block.

Her kids are quite happy for her to live out her days on a big block with a zero value structure. Remove that rotten Stamp Duty and fund this by removing the PPOR exemption from State Land Tax. Revenue neutral. And land tax is a powerful automatic stabiliser in downturns, as those ignoring my considered advice are about to witness.

Don’t Buy Now!
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My wife's parents are in this situation now, both self-funded millionaire retirees and living in a large expensive home. They’ve talked recently about moving but there is big disincentive for them to move with paying stamp duty, moving away from family and finding a place that meets their standards/expectations. To stay in Sydney and still be close to family would cost them a lot of money for little gain.

They talked about pissing off to a semi-rural area to have more space and relax but then complain the costs are exorbitant, they also talked about moving out west to a country town and rebuilding but are worried that it would not work out as they’d be far from the family and be expensive to re-settle.

These parasites make me want to move out of the country. Here I am, paying massive amount of tax to support an ever increasing aged pension for these millionaires, while also having to pay ridiculous rents – even as they live like kings and queens in their mansion.

Although in some ways they are as much victims to the Sydney housing market as I am. Even to look at moving to a nice over-55 place, they are looking at over $1m with many clauses which would cost them money if they decided to relocate. Frankly these days $1m doesn't get you much.

Ridiculous.
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