Australia’s retirement income system has long implicitly taken it for granted that the vast majority of retired people will have very low housing costs – in turn reflecting a presumption that most of them will own their own homes, and will have fully paid down any mortgage debt taken on in order to finance the original acquisition of their homes; and that those who have been unable to become home-owners during their working lives will typically be accommodated in low-rental housing provided by State and Territory governments.
Consistent with this view, the Australian Superannuation Funds Association (ASFA) retirement standard budgets – both ‘comfortable’ and ‘modest’ – assume that retirees own their homes outright and hence make no provision for housing costs. These presumptions have allowed successive Australian Governments to maintain age pensions at lower levels than in most other ‘advanced’ economies without resulting in higher levels of poverty among retirees.
However, these assumptions are becoming increasingly dubious, as a result of three trends which have emerged over the past two decades:
- first, declining rates of home ownership among people of working age, especially those in their late 20s and early 30s;
- second, among those who have attained home ownership, declining rates of outright ownership – that is, having fully paid off their mortgage – and, conversely, a rising proportion of home owners, particularly among those in their late 50s or early 60s, who still have mortgage debt outstanding; and
- third, a declining proportion of people aged 65 and over living in accommodation rented from State or Territory housing authorities, and conversely, an increasing proportion of people aged 65 and over living in private rental accommodation, for whom housing costs represent a higher-than-average, and rising, proportion of total income.
If these trends continue – and there is little reason to think that they won’t – then it is likely that:
- an increasing proportion of new retirees will use some or all of their accumulated superannuation savings to discharge their outstanding mortgage debt, meaning that a higher proportion of retirees may remain wholly or partially dependent on the age pension than currently assumed; and
- an increasing proportion of retirees will be living in privately rented housing, spending a higher proportion of their income on rent, potentially generating political pressure for increases in the level of Commonwealth Rent Assistance, in the age pension itself, or both.
In other words, there is a clear link between deteriorating housing affordability and the adequacy of Australia’s current retirement income system.