Asset rich, but income poor: Australian housing wealth and retirement in an international context

15 Dec 2010

This paper looks at patterns of own-home wealth across the life cycle in Australia and in several North American and Western European countries and finds that Australia is out of step with comparable countries.

In the mid-1990s, the Australian elderly had the lowest relative incomes (compared to national averages) across 19 OECD countries. Including housing in the calculation increases the resources of the Australian elderly up to a more internationally typical level, but this potentially implies an unbalanced pattern of consumption (compared to the international norm).

Although the paper demonstrates a correlation between an unusual social policy environment and an unusual pattern of housing consumption in retirement, it cannot be assumed that the former causes the latter. Historically, the two features developed together, and can best be seen as complementary components of an overall retirement package.

Nonetheless, the fact that the housing wealth patterns of the Australian elderly are so divergent from those in other countries suggests that particular attention needs to be paid to this issue here. Policy options to increase the ability of the elderly to take better advantage of their housing wealth might include stamp duty concessions to enable down-valuing and a greater role for the state (or for new private sector institutions) in managing the risks associated with reverse mortgage and similar schemes. Moreover, in future years as superannuation schemes mature and the Australian aged enter retirement with a broader range of wealth holdings, it may be necessary to revisit the question of the special exclusion of the own home from the Age Pension asset test.

Similarly, though this paper focuses on the situation of the average older person, the role of home ownership in protecting the living standards of (some of) the disadvantaged is an important question for future research and policy development.

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