The findings come from a new BIS Oxford Economics (BIS) report titled Emerging Trends in Residential Market Demand, which outlines how changes to the age profile of the population over the next decade will likely result in a shift in the type of demand for dwellings.
The report examines trends revealed by a detailed analysis of census data from the past 25 years and predicts that the average annual increase in the number of households with a habitant over the age of 65 years will surpass the 80,000 mark by 2028.
This age group represents the greatest rate of household growth over the next decade and could therefore have a large impact on the make-up of dwelling demand in the near future.
By analysing census data, the BIS researchers noted, however, that the growth rate of downsizing in this group has been “glacial”, with only a modest increase in the percentage of 65-year-olds and above households living in multi-unit dwellings between the 2011 and 2016 censuses.
With the younger generations (including those in the large Generation Y segment, currently aged around 20 to 34 years old) potentially seeking to move into larger dwellings to start families in the next 10 years, this could put pressure on housing stock.
However, the researchers argued that as more retirees will likely still be paying off their mortgage, financial constraints could lead to a surge of the older generations downsizing.
BIS Oxford Economics analysis showed that the percentage of households leading into retirement (50- to 64-year-olds) that had a mortgage increased from 20 per cent in 1996 to 42 per cent in 2016, with a corresponding fall in the share that fully own their home.
“This would suggest that households will increasingly still have a mortgage once the occupants reach retirement age,” senior manager, residential property, at BIS Oxford Economics Angie Zigomanis said.
“Unless the occupants elect to remain in the labour force, there will be an increasing number who are likely to sell out of their dwelling upon retirement to move elsewhere or into a lower-priced smaller dwelling to reduce their debt.”
The researchers suggested that this could therefore add to demand for smaller dwellings from downsizing retirees, most likely in established areas where they already owned their previous home and had established social connections.
Previous analysis from the industry researchers has also suggested that the older generations would be more inclined to move to units and town houses over apartments. However, BIS warned that these same smaller dwellings in established areas are likely to also be attractive to some of the growing Generation Y families.
“If there is inadequate demand in these locations for new infill unit development, there is likely to be greater pressure on house prices, as houses on suitable larger lots become sites for town house development,” the researchers said.
Downsizing in the spotlight
The federal government has been looking to incentivise the older generations to downsize, passing legislation last year that enables those 65 years or older to make a “downsizer contribution” into their superannuation after selling their home.
In an attempt to free up homes for younger, growing families, the legislation will enable home owners that are 65 years and older to place a non-concessional contribution of up to $300,000 from the sale proceeds of their current dwelling into their superannuation.
Both members of a couple aged over 65 will be eligible to make a contribution, meaning a couple can contribute a combined sum of $600,000 to their super.
In order to be eligible, Australians over the age of 65 must have lived in the dwelling they intend to sell for at least 10 years, and can only make contributions for sales that occurred after 1 July 2018.
The downsizer contribution is only valid for the sale of one home and cannot be used more than once.
Speaking after the key elements of the legislation were passed last year, Treasurer Scott Morrison stated: “The downsizing measure removes a financial obstacle from older Australians who are considering moving to homes that better suit their needs.”
Mr Morrison concluded: “The Turnbull government is continuing to deliver on its commitment to ensure all Australians have access to secure, stable and affordable housing.”