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It has long been rumoured that the 2017 Federal Budget would offer incentives for retirees to downsize to smaller properties, in a bid to free up homes for young families. The Turnbull government has made a change but it unlikely to free up the 50,000 homes per year that was once touted. 

The idea is not to offer monetary incentives that compel or force retirees to downsize. Rather, it’s more about removing disincentives and addressing the barriers that keep retirees from wanting to relocate.

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### Barriers to downsizing
![baby-boomers](//images.contentful.com/o2gysnvd04sg/2XGNlOcL5uCksqaKka8YKA/545fadaecc0b0f92ea84bcf7253ccd16/baby-boomers.jpg)
The Government’s Productivity Commission completed a study in 2015 that put the average age of property owners in Australia at 74 years, indicating that retirees are opting to stay at home until quite a late age. However, it also revealed that only 20% of people over 60 had downsized from their family home since turning 50. 

There are a number of factors that keep pensioners from wanting to downsize, both financial and personal. Understandably, many have an attachment to the home they and their children have spent a majority of their lives in, and simply don’t want to leave. They see it as a place to age and remain throughout their retirement, and some even wish to leave the home to their children or grandchildren as part of their inheritance.

Many also wish to stay within a particular area, perhaps because they feel comfortable or are involved in the community, but cannot find smaller properties in the same neighbourhood that are also affordable. 

Conversely, some aspire to move, looking for a particular lifestyle or property type, for instance one without stairs or a high-maintenance yard, but cannot afford to do so.

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Financial reasons include the fact that, while a primary residence is not included among a pensioner’s assets, any money made from the sale of that residence is. At present, under a pension assets test this increased income could lead to payments being reduced, or even cut off altogether. 

Additionally, a lot of the money made through the sale of the house will be lost to tax. The profit made will typically exceed the $180,000 ($100,000 from July 1 2017) superannuation cap, as well as the $1.6million tax-free retirement fund cap, and will therefore be heavily taxed. 

![federal-budget-2017](//images.contentful.com/o2gysnvd04sg/3VCgxdQqf62iK0GgemW20u/698d9735647f4bb510081f457719b076/federal-budget-2017.jpg)
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They will also be required to pay stamp duty on the new property they purchase. For a senior purchasing a median-priced property in Sydney, for example, that tax will exceed $30,000.

### The government's solution?
While there is little that can be done to convince pensioners to leave a home they have a long-standing attachment to, the financial disincentives to moving can be addressed, and the 2017 Federal Budget has made its point.

Those over the age of 65 who wish to downsize will now be able to pour up to $300,000 of proceeds of the sale of their old home into their super fund. This means that sudden extra income made from the sale of their home will not be completely lost to taxes. However, it’s expected that this will only help up to 10,000 people a year. 

As for the stamp duty tax, this is not going away anytime soon. There have been many proponents for state governments to remove it on property and to replace it with either a broader land tax or a general property tax, as it is argued that this would make housing more affordable, not just for retirees, but for all homebuyers. Perhaps one day it will be phased out throughout Australia, but for the moment retirees will still be required to pay this tax on property. 

Data courtesy of CoreLogic. 

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