How the aged care reforms will make our housing crisis worse

It defies all logic that while creating policies to ease the housing crisis, the government is instead managing to make it worse, but that is what’s happening with the aged care reforms.

While a big part of fixing the housing crisis comes from building new homes, the other part is freeing up existing homes – which is quicker and cheaper and enables people to live in areas with established infrastructure.

Around 70,000 Australians move into aged care each year, a figure that is set to grow substantially, and yet the aged care reforms create financial barriers to selling these homes.

Aged care reforms were intended to improve a flawed system, but in fact, they may have the opposite effect.Credit: Dominic Lorrimer

The aged care reforms will cap the value of the family home included in the means test at $206,039, but other assets such as bank accounts and shares will be included at market value. It creates an incentive for people to keep the family home and a disadvantage for people whose wealth is in assets other than their home.

In fact, the greater the value of the family home the greater the incentive. Someone with no home and $2 million of investments will be assessed on all of those assets, while someone with a $2 million home could keep it and have only $206,000 assessed, keeping $1,794,000 out of the aged care assets test.

The most common reason people sell the home is to pay the Refundable Accommodation Deposit (RAD), however, the aged care reforms create disincentives for people to do so.

Instead of bemoaning Australia’s love of property, we need to recognise that it makes financial sense.

The first is that the RAD is included in the aged assets with 7.8 per cent of assets above $238,000 contributing towards the hotelling supplement, and 7.8 per cent of assets above $502,981 contributing towards the non-clinical care contribution.

Someone who keeps a $2 million home could save $41,500 per year in means-tested contributions compared with selling the home. People who pay a RAD after 1 July next year also face an exit fee of up to 10 per cent if they stay in aged care for five years.

The reforms won’t only encourage those moving into residential aged care to keep their home, those receiving home care will be incentivised to stay in the family home rather than downsize into more age-friendly housing.

The new Support at Home program will use age pension means testing thresholds and rates. This means there will be different thresholds based on whether you are single, a couple or a couple separated by illness, and whether you are a home owner.

A pensioner who downsizes and frees up money from the sale of the family home would see the cost of their home care increase as their pension reduces.

Instead of bemoaning Australia’s love of property, we need to recognise that it makes financial sense. If we want people to downsize into age-friendly accommodation and sell their home when they move into aged care we need to create incentives for them to do it.

These aged care reforms will incentivise people to do the opposite.

Rachel Lane is the author of the bestselling book Aged Care. Who Cares? and Downsizing Made Simple with fellow finance expert Noel Whittaker. The new edition of Downsizing Made Simple is now available online.

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