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LJ Hooker Research | White Paper Downsizing.com.au

The downsizing dilemmaOne thing that needs to be remembered in the housing supply debate is the fact that the vast majority of property across Australia is “existing stock”; that is established homes and apartments spread out across our suburbs.

So, while a consistent supply of new stock is always needed to be added to the market to service Australia’s growing population, we also need to ensure that existing stock is being “recycled” to ensure that all households reside in a suitably sized home.

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The property “lifecycle”At present, there is a blockage in the property “lifecycle” which is reducing the amount of existing properties coming onto the market for sale. Traditionally, first home buyers and young couples and singles purchase a small apartment as their first home. They then move on to a larger apartment or townhouse. Once their family grows their property needs change. They then tend to buy a larger family house with a backyard. Once the children move out and the maintenance and upkeep of a larger family home becomes an unwanted chore the owners then look to downsize to a more manageable property.

However, in recent years as host of factors have seen downsizers remain for longer in their large family home. This blockage in the lifecycle has led to a lack of family homes being listed on the market for sale which has in turn seen fierce competition between buyers for a smaller pool of houses.

Downsizing TrendsBy Amanda Graham - Co-Founder and Co-CEO of Downsizing.com.au and SeniorsHousingOnline.com.au

We know that downsizing trends have changed after the Global Financial Crisis: more people are delaying retirement and continuing to work for as long as possible. This means that the once popular “seachange” lifestyle move with an early retirement is less common, as people choose to remain in the city. Many older workers still have a large mortgage as they approach retirement, as well as adult children living at home longer who can’t afford to buy their own first home.

For most Australians, their family home is their biggest investment and their best source of wealth accumulation and tax-free capital gain. It is a difficult decision to sell up, particularly as recent changes to pension eligibility and superannuation rules have created disincentives to cash in their home equity. When this complexity is compounded by significant transaction costs, a lack of suitable alternative housing, and the difficulty in predicting future health and longevity outcomes, it’s not surprising that the default position is to stay in the family home for longer.

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Are you looking to downsize from your current home?

Survey backgroundTo better understand what specific factors are keeping those that would traditionally downsize in their larger family homes longer, LJ Hooker and specialist retirement property websites Downsizing.com.au and SeniorsHousingOnline.com.au surveyed Australians aged over 50.

The survey looked to uncover the key issues and concerns which are holding back older property owners from downsizing.

Of the more than 800 home owners that responded to the survey, 71% of said that they were either currently looking to downsize or planned to downsize in the future. A further 19% said that they had already downsized.

Spare bedroomsIncredibly, 89% of respondents said they had a spare bedroom available in their current home which no-one occupies regularly. Furthermore, 64% said they have two or more spare bedrooms and 23% said that they had 3 or more spare bedrooms in their current home.

This is important because it is these bedrooms that would be freed up if the home was turned over to a new buyer. It also shows the potential untapped and unused housing resource currently sitting available in property markets across Australia.

How many “spare” bedrooms do you have in your current home?

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• 35% of respondents said that they aresimply unable to find a suitable propertyto downsize into. This was made up of20% that could find a property in theright location and 15% that couldn’t findthe right type or sized property.

• The cost of change, that is the additionalcosts incurred in selling and then buyinganother home, such as governmentstamp duty, was stopping 25% ofowners from downsizing.

• In addition, 15% said that the currentsuperannuation caps and pension assettest were stopping them from makingthe change.

Barriers to downsizingThe survey found that the “cost of change” and a lack of suitably priced, located and serviced properties are the two biggest inhibitors to people downsizing.

Are there any specific factors which are stopping you from downsizing?

What do you se as the biggest barrier to downsizing (Ranking)

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Solutions

Policy needs to be targeted to ensure that downsizers are not worse off financially and more importantly there is supply for them to move to.

What is the MOST important factor in choosing a property to downsize into?

1. Supply in the right places at the right price

When governments talk about adding new supply, to help alleviate affordability issues, they need to be more thoughtful about who the end occupant is going to be.

This means ensuing that the new properties being planned and built are not just targeted at first home buyers or investors but new stock its suitably priced, serviced and located to fit the needs of those looking to downsize out of a large family home.

2. Reduce the cost of change

Reducing the costs associated with buying a home would greatly help encourage more people to downsize. Our survey found that 30% of respondents said that paying a reduced amount or no stamp duty on their next property purchase would be the one incentive that would help them to downsize.

Which ONE incentive/change would most help you downsize?

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Moving forward

The Australian Government’s 2017/18 Budget announcement to allow proceeds from the sale of the family home to be contributed to superannuation balances is very welcome, and this will have a positive impact on future housing stock availability as more older people decide to sell their longstanding family home. However survey results show there are other important barriers to downsizing which need to be addressed, including stamp duty and pension

eligibility tests.

The focus of governments needs to broaden in the housing affordability debate. Most of the attention has been on how to increase the supply of homes without nuanced analysis and thinking about who the end user will be.

New stock needs to be tailored to not only just suit first home buyers and investors but also help the older generation make the move from a family home into a suitably sized priced and located property.

Assisting home owners to downsize will alleviate the current blockage in the property lifecycle and help free up large established homes in our suburbs that are in short supply and in high demand and may be more suitable to a growing family.

If you’re looking to sell, buy or rent to achieve your real estate dreams, we can connect you with your local LJ Hooker office.

Please call 1800 621 212 or visit www.ljhooker.com.au today for more information.

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