Report highlights the disincentives stopping you from downsizing

There is a lot of talk at the moment about housing affordability around Australia.

But there is one issue of housing affordability that’s particularly relevant to you if you’re an older Australia – and that is the cost of downsizing.

If you thought the process of selling up, moving and buying another home was expensive, you weren’t wrong.

The Property Council of Australia has conducted research on the costs of downsizing and what they have revealed has prompted them to call for changes.

The PCA argues that transaction costs such as stamp duty are creating “a major impediment to housing affordability”, with the cost of downsizing your home now at almost $75,000 for the average Sydney household.

That figure is approximately $10,000 less in Melbourne.

But it all comes down to stamp duty, which varies from state to state.

PCA chief executive Ken Morrison said the biggest cost of downsizing was stamp duty.

“When you add removalists, conveyancing fees, bank fees and real estate commissions, the figure becomes substantial,” he said.

“It’s another reason we have an issue in our major cities with housing affordability.”

If you’ve sold a house recently or looked into it, then you’ll know the cost of stamp duty is continuing to rise.

According to the PCA, stamp duty has doubled in New South Wales in the past six years to an average of $40,000.

“We are seeing similar lifts elsewhere,” Mr Morrison said.

“If the state governments are serious about housing affordability they can start with stamp duty and planning system reform.”

In Melbourne that figure is around $38,000, while in Brisbane it’s around $16,000, Perth and Adelaide it’s around $18,000, in Canberra it’s a little over $21,000 and in Darwin it’s more than $25,000.

Hobart has the cheapest stamp duty in Australia, at an average cost of around $12,935.

So, what impact would cutting or dropping stamp duty have?

Well, the PCA points to Deloitte Access Economics research that points to an extra 34,000 properties being sold each year if stamp duty was dropped.

And the average Australian would only hold on to their property for eight years instead of 13.

But the issues holding older Australians back from downsizing go beyond just the costs.

According to the Productivity Commission 15% of older Australians would like to downsize their homes, but worry about the impact it would have on their age pension.

The Property Council is calling on the government to exempt some of the proceeds from the sale of the family home for full-rate pensioners over the age of 75.

In a submission to the government, the PCA describes the cost of increasing the asset free area to those pensioners as “notional”.

“It represents the cost of continuing to make age pension payments that the Government already pays, because most age pensioners make the economically rational decision not to downsize under current rules,” the submission states.

Costings by the PCA looked at a few scenarios including the prospect of 10% of full-rate pensioners over the age of 75 (49,000 people) downsizing because of a change in policy.

Under that scenario, the cost to the government would very between $38.4 million and $173 million – dependent on how much they lift the assets test threshold by.

“A structural change to the age pension as described in this submission would remove a significant disincentive to downsizing for senior Australians, and create many social and economic benefits because the health and aged care savings would significantly outstrip the notional cost of continued age pension spend,” the PCA submission argues.

Mr Morrison said changing the age pension assets test rules to make it easier for pensioners to downsize their home could result in extra properties going on the market

“This measure could bring up to 50,000 family residences into the market, which would help take pressure off housing prices,” he said.

As you might have read on Starts at 60 last month, the government is looking at ways to make it easier for you to downsize and they’re reportedly considering a number of changes in the upcoming budget.

Among the changes reportedly being discussed include allowing some of the proceeds of the sale of your home to be contributed to your superannuation without penalty or having a portion of that money exempted from the pension assets test.

What do you think? Do you think it’s too costly to downsize? Would you like to see a change in government policy?