HOME ownership has been called the fourth pillar of Australia’s retirement income system. (The other three are: the Age Pension, superannuation and private savings).
Owning your own home when you retire makes surviving on the Age Pension a lot less difficult.
We’ve all heard about rents rising fast everywhere, even in regional areas where traditionally the pace of increases was much lower.
So, to write an article about selling up your home and becoming a renter seems to be going against the grain.
To be clear, we’re not saying you should do this anytime soon. You need to wait until build-to-rent schemes take off.
Build-to-rent schemes are where a big investor and a property manager get together to build homes specifically to rent them out. This could be an estate, or it could be one or more apartment blocks.
Build-to-rent schemes are very common in Europe and the US. In Europe these schemes come with rent regulation, usually stipulating how much rents can increase. They also come with security of tenure: you cannot be evicted as long as you pay your rent on time.
We’ll go into the nitty-gritty of these build-to-rent schemes and how they can work in Australia another time.
Let’s just say, for argument’s sake, that these schemes work, and that many people – young, middle-aged and old – can be very comfortably housed that way.
Now, if as a retiree you own your home, you have an enormous amount of capital locked in. Sell your home, you unlock the capital.
Right now, the only way to unlock capital in your home is to take out a reverse mortgage. This has two huge disadvantages.
First, a lender will only give you a maximum of 25 per cent of the value of your home. Sell your home, you get 100 per cent.
You invest the sale proceeds, and from the investment return and by dipping into your capital you pay rent and supplement your Age Pension. We would need a special exemption from meanstesting for the proceeds of the sale of a family home, of course.
The second disadvantage of a reverse mortgage is that you have to repay the loan plus interest if and when you sell. But if you sell, you generally wouldn’t have enough to buy another place. So, you don’t sell. You are effectively stuck, even if you develop medical or mobility problems that make it necessary that you move. Your only move then is to a nursing home.
But if you sell up, you have money to supplement your pension and pay rent in a purpose-built build-to-rent scheme. This means housing that is accessible and where a chronic dicky knee or two doesn’t cause entry into a nursing home.
Build-to-rent schemes for that reason are very popular with especially older retirees in Europe, whose savings are running out and who live in older homes.
Build-to-rent-schemes would not only go a long way to solve Australia’s housing crisis generally, but they can also make life so much more agreeable in retirement.
In the words of one build-to-rent-scheme retiree: “I have never been this rich!”