The ageing of Australia’s population is expected to accelerate. At present, there are 5 million people over the age of 55 across Australia. Within the next 40 years, that number is expected to exceed 11.5 million. This represents a projected growth rate of 150,000 people per annum.
Within a generation, a third of Australians are going to be aged over 55 years old and close to a quarter will be aged over 65.
Assuming that all those aged over 55 years were to move into a new dwelling, there would be a need to create 90,000 new homes across the country each year for this older market segment. However, most ‘55-plus’ households cannot afford to move into more appropriate accommodation. The high entry and rental costs of the current retirement products on the market prevent them from doing so. Many will be forced to age in place.
As a result, the more practical requirement is currently for around 15,000 new retirement dwellings per year, three-quarters of which are needed across the eastern seaboard. This market is quite undersupplied. Our estimates suggest that new retirement housing construction has ranged from between 3,500 to 4,250 new starts each year over much of the last decade.
About 80 per cent of ‘55-plus’ households own their home outright, with around 15 per cent either renting or living with relatives. Most have not moved in the last five or 10 years, while half have not moved in more than 20 years, as the number of times a person moves residence declines considerably with age.
When ‘55-plus’ households do move, it is primarily for lifestyle reasons (35 per cent); followed by affordability grounds (25 per cent) and the want for a smaller and more hassle-free home (20 per cent). One in 10 moves to be closer to family or friends.
Many in this older market segment are very sensitive to price. Their new abode must have a strong connection to the local setting. This market also places a high value on living with others of similar background, age and interests, and trend seems to accelerate as one ages.
Whilst many own their principal place of residence, and have done so for some time, many Australians over the age of 55 years are cash-poor. The latest official data shows that 55 per cent of our older residents live on less than $500 per week and 35 per cent live on less than $350 per week. Sadly, one-quarter of Australian residents aged over 45 years have no personal income, with 45 per cent largely relying on a government pension or allowance. A further 25 per cent rely on their investments, including superannuation.
The median house price across our Australian capital cities is now $540,000. For attached dwellings it is $455,000.
However, older Australians generally own older properties, which in turn generally have lower median values. In addition, many of the properties held by older Australians need repair, sometimes in a major way, are usually located in middle to outer-ring suburbs and have limited renovation appeal, especially to a younger buying audience.
In short, many properties held by older Australians could be difficult to sell and for a premium.
Australia is facing a demographic tsunami.
There are 5.3 million baby boomers (born between 1945 and 1964), and the oldest are now starting to retire.
This dominant market segment makes up 25 per cent of the Australian population; represents 38 per cent of the country’s households; 43 per cent of the paid workforce and holds 49 per cent of our housing assets (in dollar value). Yet they do have great equity in their properties – 93 per cent for owner-resident stock and 86 per cent for their investments and secondary homes.
Two out of three of their residential properties are held in a middle-ring suburb.
The baby boomer generation has always distorted the market – like a tennis ball through a garden hose – with some studies suggesting that this demographic set, by its very existence alone, generated about a third of the house price growth over the last 40 years. Some are now predicting the opposite influence, with ageing boomers applying a drag on asset growth of between 20 per cent and 40 per cent, depending on location.
So, what will the boomers do with their residential assets when they start to retire or retread?
Well, five things are possible:
– They will sell their investment properties.
– They will sell their secondary homes. But the market conditions are soft and are likely to remain so for some time, hence concepts like ‘third home’ will gain traction.
– They will downsize, rebuy and pocket the difference. But this might pose some problems as the right stock isn’t readily available.
– They will age in place and maybe consider a reverse mortgage.
– They will stay put, but retrofit their homes and rent out a proportion to family and/or tenants.
Whether or not ageing boomers will cause the market to implode is open for debate, but a couple of things are pretty certain:
– There is likely to be slower price growth in the next decade than we have seen in the recent past.
– There will be fewer housing starts and sales on a per capita basis.
– There is going to be more pressure on gentrifying our middle-ring suburbs. We need to think outside of the square here and start, for example, redeveloping our older shopping precincts into mixed-use centres including age-in-place retirement accommodation.
What would help baby boomers and other market segments move (and make housing more affordable) would be to have stamp duty paid by the vendor and not the purchaser.
It is useless banging on about the need to reduce taxation on property. In a country where about half of the population relies either directly (i.e. employment) or indirectly on the government for its welfare – reminds me of Ayn Rand’s Atlas Shrugged – and we don’t want to increase overseas migration (yet) – we will need to raise taxes, and property is an easy target.
What we could do is change who pays such taxes and when. Stamp duty paid by the vendor makes sense. So, too, does levying infrastructure charges and development application fees at the time end-buyers settle, rather than at the beginning of the new project.
Michael Matusik is the director of independent property advisory Matusik Property Insights. Matusik has helped over 500 new residential developments come to fruition and writes the weekly Matusik's Missive.
This article first appeared Property Observer on August 15. Republished with permission.