The Albanese government’s commitment to supporting older people wishing to downsize has been further enshrined, with Tuesday’s Budget factoring in a $20 million cost over four years as the eligibility age is set to drop for a second time.
The downsizer scheme allows eligible property owners to make a one-off post-tax contribution to their super of up to $300,000 – both members of a couple can make this payment – when they sell their home. Crucially, the deposit does not count towards their non-concessional super contribution caps.
The eligibility age for this was dropped from 65 to 60 this year, and Labor has made good on its pre-election promise to lower it further, to 55.
Read: Downsizing – is it the right move for you or your parents?
On top of the age eligibility reduction, the government also adjusted deeming rates, which are used to calculate pension payments. If you’re single, the first $56,400 of your financial assets has the deemed rate of 0.25 per cent applied. Anything over $56,400 is deemed to earn 2.25 per cent. If you’re a member of a couple and at least one gets a pension, the first $93,600 of your combined financial assets has the deemed rate of 0.25 per cent applied. Anything over $93,600 is deemed to earn 2.25 per cent.
However, only the lower deeming rate (0.25 per cent) will be used to calculate income earned from principal home sale proceeds while they are assets test exempt.
“This measure will reduce the financial impact on pensioners looking to downsize their homes in an effort to minimise the burden on older Australians and free up housing stock for younger families,” the budget papers say.
The rates will remain frozen until at least 2024.
The move, in theory at least, will free up houses for younger people and families, making a sizeable dint in the number of empty bedrooms – estimated to be 13 million – in Australia.
But whether that theory will translate into reality is still unknown, because, says Council of the Ageing CEO Ian Yates, there’s a lack of concrete evidence to indicate the size of the downsizer population.
“Nobody knows how many downsizers there are, because there isn’t any data collection,” he says. “I think we’re working in the dark a bit.”
Read: What’s in the October Budget for older Australians?
As part of the legislation waiting for Senate approval, the assets-test exemption for downsizers will also be extended from 12 months to 24 months, providing more time for them to buy a new home before the proceeds of the sale affects their payments.
Co-founder and managing director of Lifestyle Communities, James Kelly, believes the reforms are a step in the right direction for downsizers. “I think this is just the start. I think the reality is there’s lots of affordable housing in Australia, it’s just got the wrong people in it.”
Mr Kelly says the government should look at further ways to help downsizers and free up larger properties.
“We would love to see more action by the government. Federal governments traditionally have been very quick to give incentives to first-home buyers. We’d love to see them start to incentivise last-home buyers,” he said.
Read: Expert solution to housing crisis calls for downsizing
This will provide an affordable opportunity for young families looking to buy a block big enough to accommodate their lifestyle, says Mr Kelly.
“Most first-home buyers are priced out of buying new land and house packages. It’s just too expensive. And, in terms of life stage, the average block occupies 220 square metres. If you’re planning to have kids, that’s not ideal – you want a backyard,” he said.
The downsizing legislation has already passed through the House of Representatives and is not expected to be rejected by the Senate. Once passed, the new eligible age will come into effect at the start of the next quarter.
Are you considering downsizing? Will the changes influence your decision? Why not share your experience and thoughts in the comments section below?
