Should retirees be forced to ‘eat the house’? Australia Institute senior economist Matt Grudnoff gives his view on whether the home should be part of the assets test for the Age Pension.
S
hould retirees be forced to use the value of their home to fund their retirement? This is not an easy question to answer but it comes down to whether we think homes are investment goods or a part of the Australian dream. Prime Minister Robert Menzies (1939-41 and 1949-66) was keen to increase the rate of home ownership in the post World War II era. He was concerned about growing unrest, particularly among young people, and thought that housing was a way of getting people to invest in where they lived. You were less likely to riot in your neighbourhood if you owned a slice of it.
But home ownership rates are falling. An increasing number of families are finding themselves locked out of owning their home. This has been driven by rapidly increasing house prices as a new source of demand has rushed into the market – investors.
The tactic was successful and ownership rates soared.
Investors are driving down the rates of home ownership. More people buying investment properties means more people are renting. The only way this could not be the case is if rental properties are left empty because they are unable to find tenants. Many of those who are renting would prefer to be owneroccupiers. Increasingly, more people are feeling left out of the housing market. More rental properties mean more people are unable to live in their own home.
Home ownership became part of the Australian dream. Our retirement income system is built on the idea that you own your home. Those who are unfortunate enough not to own their home in retirement are far more likely to be in financial stress and poverty. In this context, it seems ridiculous to include the family home in the Age Pension assets test. After all, it’s an essential part of retirement.
Since the early 2000s, housing has increasingly been seen as an investment good; a vehicle to grow your nest egg; a tool for wealth creation. While the Liberals of the Menzies era wanted us to be homeowners, Liberals today want us to be landlords. In the late 1990s, the Howard government introduced the capital gains tax discount, which made investing in housing more tax effective.
8
YourLifeChoices Retirement Affordability Index™ May 2021
