September 29, 2015 by Dymphna 6 Comments

Move on, Grandpa.

The government is trying to make it easier for retirees to downsize their homes… what will that mean?

It’s back to business in Canberra this week. Now that all the drama of “The Weakest Link” or “X-factor” or “Celebrity Apprentice” or whatever it was is out the way, we can get back to the issues at hand.

And so people are asking me what I think the Turnbull/Morrison team will mean for housing.

We’ve seen a clear break in the ‘tone’ of the government. It’s no longer about stopping stuff. It’s about getting things started.

“The politics of optimism” they’re calling it. Sounds like a nice change.

But so far we haven’t seen any clear indications of what the new team-Australia will mean on the ground.

In fact, we’ve got even more options now, with Morrison effectively saying everything is back on the table. That includes contentious reforms to super and capital gains tax.

So we’ll see.

It is interesting though to look at what Morrison was up to when he was Social Services Minister.

Back in February he was promoting a scheme that would allow retirees to sell their home for a smaller property and pocket some or all of the surplus without reducing their government pension.

The idea is that many baby-boomers are reluctant to sell their big old family homes and downsize into something smaller and more manageable, because with the extra cash they’ll have in their pockets, they’ll no longer be eligible for a pension.

That means that we’re not seeing the fluidity in the property market that we might like. The idea is that baby boomers are living in big family homes with rooms they don’t use, and this is forcing young families to squeeze into apartments. They’re also living in suburbs close to employment centres, even though they’re not working, pushing working families into the outer suburbs where they waste time on long commutes and clog up the roads.

And so it’s an efficiency argument. If there are barriers that are stopping the buying and selling of property, then these barriers are stopping people live where they want to live, and as a society, it’s not our best use of resources.

This is exactly my problem with stamp-duties. Stamp-duties are a tax on buying and selling homes, and so they discourage it. What social good comes from stopping people buying and selling homes?

It’s easier for the ATO to track you down?

And so we obviously don’t want to be forcing retirees to sell the family home, but if there are unnecessary barriers preventing them from down-sizing, then we should be getting rid of them.

In Morrison’s view it also frees up a lot of capital to invest in other productive areas of the economy.

So if a retiree sells their family home for $1m, and buys an apartment by the beach for $500K, they’ll invest the remaining $500K. It makes that money available to business to invest and grow.

That’s the theory anyway.

Labor had a similar proposal in the pipeline, but the coalition scrapped it in their first budget as part of their big savings push. And the truth of it is it does cost the government money. But Morrison thinks that the benefits to economy will off-set the cost to the budget.

Again, that’s the theory.

Under the Labor program, retirees aged over 65 who had owned a house for more than 25 years and then downsized, could have placed at least 80 per cent of the surplus funds, up to $200,000, into a special account.

So perhaps we’ll see something similar from Morrison.

Is this going to be a game-changer for property?

Personally, I don’t see it being huge, but I do see it as a positive… for me.

… and for other investors like me.

If the market is more fluid, then there are simply just more opportunities. That means an investor with a solid game plan will find more opportunities to execute.

And as the market churns around what the different population segments need, there’s more opportunity to be part of that repurposing.

E.g selling the large house and block that someone bought back in the 60s, and putting in two contemporary houses. This is just one example. Manufactured growth strategies come into their own in fluid markets.

The baby-boomer transition does present some opportunities… and some challenges. On the opportunities front, where are baby boomers going to go? If they’re selling up in leafy suburban suburbs, where are they heading? To the inner-city? To the coast? To Noosa? We could see strong demand (and therefore price) growth in these areas, but I haven’t seen any clear data yet on where the baby boomers are moving, if they’re actually on the move at all…

On the challenges front, where will the gap in the market open up. If boomers leave the leafy suburbs, I don’t think we’ll see price falls there because there will be no shortage of young families looking to take their place. Rather, it might be further down the chain, with demand falling in the outer-suburbs that the young folks are leaving.

But for the moment this is just pie-in-the-sky stuff. As far as I’m aware, we haven’t seen any baby-boomer sell-off, and the economists who predicted it tend to take a pretty clinical view of housing.

When you’ve lived somewhere for 30 years, you need a lot of motivation to get going. The emotional connections to home and place are pretty strong.

But look, anything that removes unnecessary blocks in the housing market has got my vote. So go for it Scott. Go for it.

Is the pension test stopping retirees from selling? Where will the baby boomers go if they do sell?