Federal Budget Incentive to Downsizing?
Earlier this month, the Federal Budget included a number of measures in an effort to address housing affordability (or, more accurately, unaffordability). One of these measures effectively provides retirees with a roundabout and complicated incentive to downsize.
As I have written about previously, despite being passionate about reverse mortgages, I am not anti-downsizing. In fact for many seniors it may be the best option and we encourage everyone looking at a reverse mortgage to consider it. However, I do not believe the new measure will make a difference to seniors or housing affordability.
Firstly, what is the change – from July 2018, people aged 65 and older, who have owned their primary residence for over 10 years, will be able sell it and make a non-concessional contribution of up to $300,000 into their superannuation from the proceeds of the sale.
Both members of a couple are allowed to take advantage of this measure for the same home, providing up to $600,000 for a couple. There are a number of other rules, which, like superannuation and aged care matters in general, over complicate it, however, in essence it enables older Australians the opportunity to inject additional funds in to their super, above the current limit (which falls to $100,000 p.a. on 1 July 2017).
The aim is to reduce barriers to downsize, freeing up housing stock for younger generation (ignoring those downsizing will still need somewhere to live).
The problem is, superannuation is included in the means testing for Aged Pension, meaning that seniors receiving the aged pension would likely see a reduction or cancelation of what for many is their primary income. There are also significant costs involved in buying and selling a home such as agent fees, stamp duty and moving costs.
Putting aside financial matters, a home is much more than a place to live. For many it is their connection with the local community, family and friends. It is what keeps them mentally and physically active and enables them to be independent and secure. A home is full of possessions and memories, which can’t always be downsized. As such, I do not think this incentive will encourage many to downsize, beyond those that already would have.
So while the policy shows the Federal Government are looking at solutions for housing affordability, and I applaud them for this, I do not think that this measure will overcome the first law of economics – supply and demand.
Information provided is accurate as at 31 May 2017 and may change from time to time