In November 2015, the Productivity Commission released a research paper on the Housing Decisions of Older Australians.
Following on from previous influential reports around the challenge of Australia's ageing population, this report focussed on the significant wealth many Australians have in the family home that remains “untapped” throughout retirement.
It’s the “untapped” word that should give the most clear indication of where this report is headed, and this is certainly backed up by comments from the Productivity Commissioner overseeing the research.
Essentially, the value locked up in the family home is more likely to viewed as wealth that should be used by older Australians to fund their retirement and care.
Right now, there are two main impediments to this being the case. Firstly, older Australian are not in the habit of drawing down against the value of their homes while they live in them. This is because the means to do so are not commonplace. As an example, the reverse mortgage market is small, and in the view of the Productivity Commission, got off to a bad start a decade ago.
Secondly, government rules around the treatment of the family home in government means testing means wealth must remain tied up in the home to get a result (for example the Centrelink Age Pension). Australians are reticent to do anything that will result in lowering the amount of support provided by the government. Why sell your house and get a smaller one, or draw down against your house to get funds in the bank if the result is a lower Age Pension? In the view of the Productivity Commission, this is a case of the “tail wagging the dog”.
So what can we expect from the Productivity Commission Report, and future government policy?
Well it is very clear that wealth held in the value of the family home is more likely to be considered by the government when assessing an older Australian’s need for financial support.
However, if older Australians are going to be assessed on the value of the homes they live in, the government is going to have to work on ways to make it easier for this value to be accessed by older Australians. This will mean encouraging, supporting and promoting means to release the value in the home by reverse mortgages and other equity release programs.
The test for the means tested care fee already includes the value of the home - but it is capped and there are exceptions. This test could be modified or changed to reflect the government view on how much of the wealth tied up in the home is taken into account in subsidising the cost of care.
One thing is certain - the story around the family home is going to get a lot more interesting from here.