Housing help needed for seniors

One of the least known and least controversial measures in the federal budget was also one of the least sensible -- the quiet strangling of something called “Housing Help for Seniors”.

Introduced by Labor in the 2013-14 budget, it was the first attempt by any Australian government in history to encourage retirees to sell their houses and downsize. It was very limited and a bit ham-fisted, but at least it was something, and now the Abbott government has dumped it, presumably under the NIH principle (Not Invented Here).

The idea was that if you had lived in the home for at least 25 years, you could quarantine 80 per cent of the proceeds of selling it, capped at $200,000, from the aged pension income and assets test for up to 10 years, as long as the money was locked in a special account and not touched.

Australia’s retirees are rattling around in family homes that are too big to look after, and often dangerous (because of the stairs) because the houses are not counted in the pension means test, no matter how valuable they are, while the cash proceeds of selling them are.

The “Housing Help for Seniors” thing was an experimental pilot, but it probably would have worked and would therefore have been a cost to the budget (but nowhere near the cost of climate change direct action). The interest on $200,000 would be about $150 a week, which would have been a handy pension and/or super top-up.

The main problem with it, in my view, was not the cost but that it would have been a huge boon for the retirement village and 'lifestyle communities' industries and they need to be regulated properly before that happens.

Retirement villages in particular involve horrendously complicated contracts and a bewildering array of different schemes that are poorly regulated by the states.

Each state has a different approach, which makes it a nightmare for the companies involved in the industry and more so for the families of those who live in them.

There are dozens -- perhaps hundreds -- of different ways of charging people to live in the villages, many of them usurious and all of them so complicated and confusing that it is a rare resident who understands what’s going on, and often the family comes in later and is horrified to learn that they don’t get anything and instead they have to keep paying.

A national scheme that simplifies retirement villages, charges into just a few options, and regulates the prices as if they were utilities (which they are, really) is urgently needed.

About a third of existing villages are strata titled, with 'deferred management fees' that capture most or all of the capital gain from selling the unit when it’s eventually vacated and sold, often with a percentage of the original sale price thrown in as well. The monthly management fee of about $400 is, in all states, not allowed to provide a profit to the owner -- the profit comes from the deferred fee, which is what it’s for.

With strata titled villages there’s some sort of 'body corporate' charge as well as the management fee paid to the owner, and in some case bereaved families can be stuck with both fees for years after the death of a parent if the unit can’t be sold.

But strata title is now dead as the preferred method of organising retirement village. Virtually all of the new ones are under a leasehold arrangement, where the retiree buys a lease over the unit and the price includes pre-paid rent and a loan to the owner that is refundable when the unit is re-occupied (sold). In these cases, the DMF is part of the loan withheld, rather than the capital gain.

In addition to leasehold retirement villages, there is also rapid growth at the moment in 'lifestyle communities', which often look like retirement villages but are actually caravan parks with permanent homes on them instead of trailers.

When you buy a unit in one of these communities you buy the house but not the land -- you rent that from the owner, usually for about $150 a week. The lease is perpetual and, unlike actual caravan parks, you can’t be kicked out unless you’re violent and noisy, or you don’t pay the rent. The right to rent the land can be sold with the house.

These communities are booming because of rent assistance for pensioners, which is currently set at about $56 a week. That means about a third of the rent for units is paid by the government if the tenant is even on a part pension -- of any sort.

The result in each case -- deferred fees in retirement villages and caravan park-style communities -- is “affordable” housing for less well-off retirees. In essence, you’re trading potential capital gain for cheap entry, which most people are happy to do because it’s the kids who would be getting the capital gain -- and they can look after themselves.

The elephant in the unit, as it were, is the family home. The median Australian house price is $525,960. The average price of a retirement unit is about $350,000. After costs the difference for downsizers would be an average of $150,000, which would reduce the aged pension if it weren’t spent immediately on a long, lavish cruise.

So the government needs to find some of way to bring retirement villages and lifestyle communities under national regulation and then encourage people to sell the family home and move into them, by exempting the proceeds from the pension means test.

One way to do that would be to remove the exemption of the family home from the assets test in the first place, so it made no difference whether you sold it or kept it, but the political cost of that would probably be too high.

I know! How about the government allows up to $200,000 of the proceeds of downsizing be put in a special account on which the interest is not counted for the means test. Oh wait…