The upside of downsizing
Research shows that many seniors are reluctant to move out of their big homes. What would make it more attractive?
Join our campaign to make downsizing easier
NSA’s Better Housing campaign has been calling for policy changes to assist people to downsize if they want to. We know from our research that costs, such as stamp duty, and the financial impact on pension entitlements are key barriers to downsizing. That’s why we are calling for policies that remove these disincentives. Click on the link below, if you want to learn more or get behind our campaign.
Moving from a four-bedroom house into something more manageable as you get older makes good sense. So, why are many seniors reluctant to do it?
According to a recent media report, they are put off by “daunting administration, upfront costs, and are unwilling to leave the home they have lived in for decades”.
“It’s quite a complicated process and we do need to make it simpler,” economist, Michael Blythe, told Nine News.
Dr Michael Fotheringham, managing director of the Australian Housing and Urban Research Institute (AHURI), told the ABC that there are three barriers to downsizing.
The first is the availability of a new home to move into, the second is financial (can you afford to do it?), and the third emotional.
He said the financial aspect was something governments could help handle, through incentive schemes, including downsizer super contributions (see later).
But it’s the emotions attached to moving that are often the dealbreaker when it comes to downsizing.
Selling your home and moving means leaving behind lots of precious family memories, not to mention your familiar neighbourhood, the sense of community, and good friends gathered over years or decades.
Many people want to stay near their old house, which is often not possible because there’s no existing retirement accommodation in established suburbs and nowhere to build it.
On the upside, making a fresh start can have its advantages. Perhaps it will mean moving nearer to adult children and grandchildren, or closer to facilities you will need as you get older.
A move to a smaller home will almost certainly mean less maintenance to be done, and it could mean a greater sense of security.
There could also be a tax advantage for those who decide to downsize.
The Australian Tax Office advises, “If you are 55 or older, you may be able to contribute up to $300,000 from the proceeds of the sale (or part sale) of your home into your superannuation fund.
“A downsizer contribution is a non-concessional contribution, but it doesn’t count towards the contribution cap. It will not affect your total superannuation balance until it is re-calculated at the end of the financial year.
“However, downsizer contributions count towards your transfer balance cap. This cap applies when you move your super savings into retirement phase, and is taken into account in determining eligibility for the age pension.
“You should consider seeking independent financial advice in relation to the age pension asset tests.”
Downsizing could very well be a great personal choice, but you can also see it as doing your bit to help solve the nation’s housing crisis.
Dr Fotheringham said about 7.5 million Australian homes had empty or spare bedrooms.
“If we had some magical way of rearranging people so that they fit into the houses that were the right size for them then we’d have a much more efficient system,” he said.
Related reading: Nine News, ABC, ATO
NSA’s recent report on housing shows there is an appetite for downsizing to meet changing needs related to ageing. 1/3 of our survey participants were not interested in moving, one-third had already moved and another third were considering a move. However, there are barriers to this including, the hassle of moving in later life, the cost of stamp duty and the potential impact on the Age Pension. Read the report here.
