Empty-Nesters !

Trying to balance the Australian economy is similar to trying to blow up a square balloon.   When you push on one side it bulges out somewhere else.  From the first of January new rules come into force which dictate what assets you may hold to become eligible for the aged pension.

Another aspect of that "square balloon " is housing.   First home buyers are being squeezed out of the market by the escalating price of homes.   In the distant past a very sensible progression of home ownership saw a form of home recycling.   The average young couple purchased a three bedroom home in the expectation of raising a family, moved to a villa or townhouse when they became "empty-nesters " - and finally ended their years in a retirement village.    In this manner, the "used home " market became vacant and started the progression for first home buyers.

From January 1 the maximum asset a couple may hold for receiving the age pension has been set at $575,000 .   Now that the median price for a Sydney home has reached a million dollars that presents a huge problem for the average homeowner.   If they sell and buy down market they will have too much money to receive the pension, plus the fact they will be charged stamp duty on the new purchase is a disincentive to making the move.

Those considering entering a retirement village have a similar problem.   It is now customary to demand a refundable bond upon entry and this is usually of the order of more than two hundred thousand dollars - and it is still regarded as an asset by social security.   Many will be required to fund their own retirement until their assets work down to meeting the asset test.

It is not hard to envisage the decision many people will make when faced with this financial conundrum.   While they continue to live in the house they own it is exempt from this asset test. Those getting a full or part pension will have a strong incentive to remain in their homes and this will further diminish the hopes of first home buyers to enter the market.

The average Mum and Dad has an expectation that they will pass on at least a small inheritance to their children and they will see this battle between the family home and the asset test as a threat to that dream.   The outcome in Sydney will probably be vast numbers of empty bedrooms as couples - and in many cases the surviving partner - continue to occupy large homes long after they would be better served living in a village.

Of course, the logical answer to that problem would be to include the family home in that asset test, but that would be unpopular enough to tip the government that introduced it out of office.   The task for the Mandarins of Treasury is how to juggle the disproportionate height of property pricing with the needs and aspirations of ordinary people when it comes to managing a lifestyle that includes the ravages of age.

As things stand, the present regime seems set to clog the used home market with a diaspora of empty-nesters, clinging desperately to homes far bigger than their needs simply because making a move imposes an unacceptable financial imposition.