Housing decisions of older Australians

Housing decisions of older Australians

Many older Australians, especially the less wealthy, continue to save well into old age, increasing net wealth as they face increased health and aged care costs.

'When faced with lower incomes, older Australians are more likely to cut expenditure than draw down on their wealth, a surprising tale of precautionary saving,' explained Commissioner Karen Chester. Most notably this includes not accessing the wealth embedded in the family home.

'This is despite the fact that most older home owners could actually achieve a modest retirement living standard over the remainder of their lives by drawing on their home equity,' she said.

A Commission initiated survey and analysis of older Australians housing preferences shows older Australians have a strong preference to 'age in place' and access in-home aged care services if they need them according to a new flagship research report released by the Productivity Commission.

'Since home care is considerably cheaper than residential aged care, it is not only what most people want but also potentially more fiscally sustainable for Government,' said Commissioner Karen Chester.

'We are seeing that residential aged care is increasingly becoming an end-of-life option, with the average age of admission increasing,' she said.

Reforms in aged care have supported these trends. 'But further reform is still needed to deliver better consumer choice by encouraging competition and innovation by residential aged care providers,' emphasised Commissioner Karen Chester.

Research also shows that an increasing proportion of older Australians are looking to move into homes that are more suitable to their needs. These may be either in the private market or in age specific accommodation such as retirement villages.

15 per cent of older Australians expect to downsize to a more suitable dwelling or age-specific housing. State and local planning systems remain the most significant barrier to the supply of innovative and affordable housing options.

While most older Australians are home owners, older renters are a significant and vulnerable minority. They are more likely to be experiencing housing stress and have insecure tenure. The support available through social housing and Commonwealth Rent Assistance is inadequate.

'This highlights the imperative of further and comprehensive focus on retirement income policy and housing affordability for low income households, reviews which would have benefits for older Australians, as well as the broader community.

• Housing is integral to people's wellbeing, particularly for older Australians. For many older people home ownership provides security and independence in retirement.
• Older Australians strongly prefer to age in place. Most people are happy staying in their family home, despite a common perception that such homes are too big for them.
• For others, age-specific housing options provide more integrated accommodation and care, offer a way to release home equity, and may delay entry into residential aged care. Growth in retirement villages and manufactured home estates has been strong, despite planning restrictions.
• About 15 per cent of older Australians are renters, and these people are generally a highly vulnerable and economically disadvantaged group.
• There is a general lack of affordable downsizing options for older Australians, due in large part to the red tape and inconsistencies within state and territory land planning regimes.
• Residential aged care is effectively transforming into an end of life care service. The age of admission is increasing (now 83 years on average), average tenure is about 2 to 3 years, and care needs are higher.
• Many older people are reluctant to plan or get advice for possible future care and end of life needs. Decisions can be prompted by crises, and made when the person is vulnerable.
• There are positive signs from the recent reforms in aged care, including improved financial viability, transparency, and consumer sovereignty. However, further reform is needed.
• About 800 000 older Australians receive home care. Older people's desire to age in place aligns with governments' fiscal goals - in most cases, assistance for home care is considerably less costly than for residential aged care. Nevertheless, there may be merit in increasing co-contributions for both home and residential aged care.
• Most of older Australians' wealth is in the family home, but it remains an untapped source of retirement income. Many older Australians, including some of the poorest retirees, continue to save (spending less than their Age Pension) even very late in life. The main reasons for such behaviour are precautionary saving and a strong aversion to debt in old age.
  • This precautionary saving is driven by uncertainty around longevity, health and residential aged care needs, and is a potentially expensive form of 'self insurance' that can lower living standards in old age.
• Most older Australian home owners on low incomes could achieve a modest retirement living standard over the remainder of their lives by drawing on their home equity.
• Financial equity release products could facilitate withdrawal of home equity to fund retirement needs. However, this market is small and unlikely to grow in the near term:
  • Most providers are diffident due to small market size and the risk of reputational damage.
  • Broader reluctance by older people to tap into home wealth and strong aversion to debt, coupled with the high cost of such products are impeding demand. The tax and transfer treatment of the family home further reinforces this.