Rising property prices and declining home ownership could “condemn future generations to poorer living standards” and force more Australian retirees to rely on the aged pension, a recent report has found.
Released by the Australian Institute of Superannuation Trustees in late March, the report says a growing number of retirees will need to use some of their superannuation to pay off mortgages.
The report, No place like home: the impact of declining home ownership on retirement, suggests current assumptions about the number of Australians able to fully fund their own retirement may prove optimistic.
The report's author, independent economist Saul Eslake, says Australia’s retirement income system has long taken it for granted that the vast majority of retirees will have very low housing costs, presuming that most will have paid of their mortgage and own their homes outright.
Eslake says the Australian Superannuation Funds Association (ASFA) benchmark retirement standards – which outline incomes required to fund ‘comfortable’ and ‘modest’ lifestyles – assume retirees own their homes outright.
He says these assumptions are becoming increasingly dubious as a result of three trends which have emerged over the past two decades:
- Declining rates of home ownership, particularly among those in their late 20s and early 30s;
- Declining rates of outright ownership, and
- A growing proportion of people aged 65 and over living in private rental accommodation, spending a higher proportion of their income on rent.
Eslake says if current trends continue, a lot more people will retire with either mortgage debt or having to rely on privately rented housing.
“Increasing numbers of retirees will use some, if not all, of their superannuation to discharge their outstanding mortgage, which in turn, will see more people rely on the Age Pension,” he says. “In other words, there is a clear link between deteriorating housing affordability and the adequacy of Australia’s current retirement income system.”
Based on ABS Surveys of Income and Housing, the report found overall home ownership rates fell by 4% in the 10 years to 2014, but among specific age groups there has been some very large declines. For households headed by people aged 25-34, 35-44 and 45-54, home ownership dropped by 13.5, 10.3 and 8.1 percentage points, respectively.
The report reveals even sharper falls in outright homeownership over the past 15 years from a peak of 61.7% at the 1996 Census to 46.7% in 2013-14.
“Compared to 15 years ago when almost three out of five homeowners owned their home outright, homeowners with a mortgage are now in the majority,” Eslake says. “These emerging trends in Australia’s housing market spell trouble for those who will be entering retirement over the next three or four decades.”