Home affordability and the ageing population: Is government doing enough?

Two topics that continue to prompt robust conversations are that of home affordability and the cost of Australia’s ageing population. There is a strong correlation between the two subjects. Governments spend a lot of time talking about these issues, but we have seen too few effective policies to properly address them.

The focus and discussion around baby boomers and Australia’s ageing population centres around how they will finance their retirement without increasing an already huge burden on the public purse. Compulsory superannuation was designed to address this issue. However, in the shorter term it will not be the sole solution.

Governments have identified the three financial pillars of retirement are compulsory superannuation, the old aged pension and personal savings. With the likely outcome that the qualification age for the pension is going to be lifted together with tougher means testing, puts added pressure on superannuation and savings/personal investments to finance retirement. The only real government incentive being provided for these three pillars is the tax benefit flowing from superannuation contributions.

The key fourth pillar of retirement should clearly be defined as home ownership which, together with compulsory superannuation, can provide the necessary funds for a comfortable retirement.

Governments should recognise these four pillars and provide appropriate incentives at each level to encourage the accumulation of funds over a person’s working life to fund their retirement.

The earlier a first home is purchased the greater the value accumulated over the owner’s working life, which ultimately contributes to greater retirement funds. However, there are some strong opinions out there and each generation has a different view on just how difficult it can be to get a foothold in the property market.

Many property commentators are quick to jump on the young people of today and say they are not willing to make the same sacrifices that their parents made to own their first home. They want a house, but they also want the latest phone, a modern European vehicle, to dine out with friends or take regular holidays overseas. Sell smarter.

In many instances this may be true, but it can be too easy to fire shots at young people that seemingly don’t have the discipline or commitment to lock down their lives and save for a deposit. What about those young Australians that are grinding out a meagre living in pursuit of the dream of home ownership?

What is our government doing to support these people and encourage them to stay the course?

The immediate example is the Housing Affordability Fund, which ended at the conclusion of the 2012/2013 financial year.

The fund was in effect from 1 July 2008 and when initiated, was anticipated to assist around 50,000 Australians into their own home by lowering the cost of infrastructure and regulatory costs that are incorporated into the purchase price. More than half a billion dollars was allocated to the fund and distributed by direct grants to local governments of areas in need over five years. It was one of several innovative Labour government policies addressing housing affordability concerns from that era, but now most of these commitments have tapered off and not been renewed.

In addition to this, a number of state governments have narrowed the stamp duty concessions for first home buyers to new dwellings only, which may have assisted the construction industry, but not necessarily the wider first home buyers’ sector.

So where to now for those striving for the security and sense of pride that home ownership can bring? There appears to be greater emphasis on government initiatives to assist those at risk of homelessness, but little in the pipeline to take young Australians out of a perpetual state of rental fatigue.

It is time for the federal and state governments to get together and agree a uniform approach to first and last home ownership and consider various solutions to incentivise both initial home purchasers as well as retirees that will ultimately remove much of the burden from tax payers in the future.

Initiatives such as:

• Greater incentives for developers to provide affordable housing
  
  
• Broader based stamp duty concessions for first home buyers
  
  
• Reintroduction of government grants for first home buyers
  
  
• Lowering capital gains levels for retirees selling investments to fund retirement
  
  
• Tax concessions for savings for first home buyers’ deposits and for potential retirees over 60 years old

The overwhelming sentiment out there in the market is one of increasing frustration. Young people are stressed about their employment prospects and concerned about getting in over their heads when it comes to property investment. The ageing population is concerned about the level of funds required to retire comfortably.

It’s time for some effective government solutions to properly resolve these two issues once and for all.