It’s hard to have a discussion about housing affordability without the focus turning immediately to the plight of millennials and to a lesser extent Gen Y.
Trying to save for a deposit, the soaring costs of housing, the escalating sizes of mortgages – all these subjects and more dominate media, political and community discussion.
But in addition to the problems faced by young Australians – mostly those in Sydney and Melbourne – we also need to begin thinking about the affordability problem for older Australians. This is a very real and fast emerging problem which is not getting anywhere near the attention it deserves.
The facts about retirement incomes and housing for seniors are sobering. The retirement and superannuation industry likes to promote the idea of post-work lives that feature couples with groomed waves of silver hair and perfect teeth, dressed in pastel coloured knit wear and walking their Labrador along a deserted beach. It’s a nice image, but so far removed from the reality for the majority of Australians that it’s bordering on deceitful.
According to a 2013 OECD report, Australia was second only to Korea as having the worst seniors poverty in the world based on the percentage of seniors with incomes below 50 per cent of the median income. Australia came in at just over 35 per cent of seniors with incomes below half the median – almost three times the average of 34 nations surveyed.
One in four retirees in Australia receives the full pension or close to it. A further quarter received a part pension. Two thirds of Australians over 65 earn less than $400 a week from all sources. Roughly one in four people over 65 are still paying off a mortgage or are renting.
Superannuation is yet to deliver the retirement incomes promised. The proportion of Australians aged over 65 with no superannuation at all if roughly 65 per cent. The average superannuation balance for someone aged 70 to 74 is just $102,000. The median superannuation balance on retirement in 2016 was $100,000 for men and $28,000 for women. Estimates of what’s needed in superannuation at retirement vary but usually start at $500,000 and rise to $1 million. So we’re falling a long way short.
This picture may begin to improve if super contributions rise in the future, and as more people reach retirement with a lifetime of contributions behind them. But even then, the ability to look to superannuation as a retirement self-funding option for the majority of Australians is slim indeed.
What’s going to make things worse is our success at living longer. If you’re a 65-year-old woman alive today, the chances are you will live to nearly 90. An estimated 10 per cent of you will reach 100. For men born in the mid-1970s, life expectancy was around 69, meaning if you retired at 60, you needed to fund an average nine years of retirement. But for millennials, their life expectancy will be in the 80s, meaning they will somehow need to fund 20 years of retirement if pulling stumps at 60, or 15 years if retiring at 65. For the high proportion that will live into their 90s or longer, it may not be anything to celebrate unless you're loaded. So while the next generation might have acquired superannuation over a longer period, it’s going to need to last a lot longer too.
This is going to become a much bigger problem in the near future, as the ‘boomer’ bubble ages. Australians aged 65 and over are now the fastest growing age group. They will represent a staggering one in every five Australians by 2033 – that’s just 15 years or so away. The current crop of 65 plus Australians number around 3.5 million. That will increase by nearly 3 million – effectively nearly doubling – in the next 20 years.
So not only are we living longer, but there will be millions more of us doing so. Which means spending longer in retirement and either drawing a pension from a depleting (relatively smaller) tax base or relying on superannuation. The latter looks improbable and the former is probably unaffordable.
This is also going to generate a wave of housing demand which we currently have no plan of meeting. The wealthier end of the seniors' housing market will have their needs met by any number of commercial providers but there is a very large and unanswered question about how we are going to provide housing for the large majority of seniors who enter retirement with small superannuation balances and little in the way of assets. Remember, one in four people aged over 65 either still have a mortgage or are renting. That proportion may grow in the future as Australians in their 30s to 50s shoulder larger mortgages to chase the escalating cost of housing, or simply decide not to bother and are lifetime renters.
Commercial retirement living providers aren’t in the business to lose money, so it is fanciful to think the answer lies here. Charitable, church and other not for profit groups are typically limited by weaker balance sheets and slimmer margins, so their capacity to meet this demand is constrained. Providing housing suited to seniors needs often means trying to find sites in established areas, where land costs are high. The cost of construction for seniors is not cheap, with (mostly essential) building codes adding to those costs. So the supply side cost structure means that providing a product a majority of seniors could actually afford is a real problem. It’s a problem now and it will only get worse.