Retirees and housing: how those without homes are punished

Homeowners are rewarded in retirement by pension asset test limits and tax rules. Should senior renters get more help?

Seniors who don’t own a home are hit by pension and tax rules. Picture: iStock

Much is made of high prices and interest rates locking young first home buyers out of the housing market, but Australians at the other end of the age spectrum are also hit hard by a lack of home ownership.

The nation’s age pension and tax rules handsomely reward homeowners, and at the same time punish renters - particularly pensioner renters.

Sadly, our system widens the gap between the haves and have-nots, but changing it seems too unpalatable for governments. So the only solution for any Aussie – whether they’re years or decades from retirement – is to do everything possible to become a property owner.

About 14 per cent of over-65 households are renting, according to the Australian Institute of Health and Welfare, with single people (22 per cent) much more likely than couples (6.2 per cent) to be renters. Being a single retiree makes affordability even tougher because you have just one pension – worth about $29,000 a year - coming in to pay the bills.

Home ownership is vital for a comfortable retirement. Picture: iStock

Pension assets test rules are unfair for renters. Here’s how.

To qualify for a full age pension from age 67, a single person can own their own home plus have other assets – such as superannuation, bank deposits, cars and caravans - up to $314,000. A single non-homeowner can have up to $566,000 of assets and still get a full pension, so their extra asset test allowance is just $252,000 – not enough to buy half a house these days.

Couples have an identical gap. A homeowner couple can have $470,000 of combined assets and still receive full age pension while a non-homeowner is allowed $722,000.

This $252,000 gap also applies to part-pension cut-offs. Couple homeowners are allowed $1.031 million in other assets before their pension disappears completely, while couples renting are allowed $1.283 million.

Given that many retiree homeowners may own houses worth $1 million, $2 million or more above pension thresholds, this is tough on renters.

Perhaps the federal government could change the rules to bring that gap closer to median house prices?

The other big punishment dished out to seniors who rent rather than own is through the tax system.

Main residences are generally free of capital gains tax when sold, no matter whether the owner pockets $500,000 or $5 million. Other assets such as shares and investment properties attract CGT where at least half the gain is added to their taxable income in a year.

Home ownership is the greatest single tax shelter offered in Australia, and the richest get the biggest benefits – upgrading massive mansions, pocketing huge profits and paying zero tax to the ATO.

Talk of removing this capital gains tax exemption on private homes bubbles up every now and then, but you’d need a crazy-brave government to make such a move that would anger an Aussie population in which about two-thirds of us own homes outright or are paying them off.

Any government trying to change the rules risks getting booted out. Some people have suggested simply limiting the CGT-free portion of a home, perhaps up to $1 million, but that would be likely to cost a stack of votes because people don’t want their property messed with and housing is still the Great Australian Dream.

It’s a dream that increasingly seems out of reach for younger generations, and many older people too, but the tax and superannuation systems mean it should be priority number one for anyone seeking long-term wealth and security.

Originally published as Retirees and housing: how those without homes are punished