Incentives Needed for Older Homeowners to Sell: Addressing the Housing Supply Crisis
A national real estate agency is advocating for targeted incentives to motivate older homeowners to sell their properties, a move that could significantly enhance housing supply for younger buyers. With real estate activity gaining momentum following a recent interest rate cut, the agency fears that existing barriers to selling may prevent a much-needed influx of properties on the market.
Current State of the Market
The backdrop of this discussion is a recent boost in buyer activity following a third interest rate cut by the Reserve Bank in August. Search and inquiry rates on platforms like realestate.com.au have surged, and auction clearance rates are at their highest levels in two years. Typically, the spring season sees heightened activity in the property market. However, national agency Raine & Horne has reported that new property listings remain disappointingly low, with appraisals down by 15% and listings dropping by 9% compared to the previous year.
Angus Raine, the executive chairman of Raine & Horne, has expressed concerns that unless policy reforms are enacted to encourage older Australians to sell their homes, escalating property prices could continue to squeeze the market. He notes that the lack of available listings is primarily due to older homeowners, or “last-home buyers,” hesitating to sell. Raine asserts that meaningful reforms could alleviate this problem.
Proposed Reforms to Encourage Sales
Raine’s proposals to address this issue include implementing a capital gains tax (CGT) holiday for investment properties and providing stamp duty relief specifically aimed at downsizers. He advocates for making the selling process more financially attractive for older Australians, who may wish to downsize for various reasons, such as relocating closer to family or seeking low-maintenance living options.
Empty-nesters are often hesitant to sell their homes due to emotional attachments, financial implications, and a limited availability of suitable alternative properties. Raine emphasizes the need for compelling reasons for these homeowners to consider selling, with potential incentives designed to provide them with the financial confidence to make that leap.
One specific measure Raine suggests is a time-limited capital gains tax exemption for older investors who sell their homes. Additionally, he proposes stamp duty relief for older homeowners—specifically those over the age of 70—who are selling their principal residences and moving into smaller, more manageable homes. This dual approach aims to create a win-win situation where older Australians can sell their properties while also contributing to the market supply needed for younger buyers.
Predictions for Market Trends
The agency projects national dwelling values could rise between 5% to 7% in the current calendar year and may accelerate to an increase of 8% to 10% by 2026, especially as further rate cuts and first-home buyer initiatives come into effect. The property prices have been on an upward trajectory, marking an increase for the eighth consecutive month in August, reaching an average record high of $827,000, according to PropTrack.
Despite an uptick in buyer activity, the overall stock levels in the market remain low. Rich Harvey, chief executive of Propertybuyer.com.au, notes that many suburban areas in Sydney continue to exhibit a very tight property landscape, attributed to various impediments, including high stamp duties. Notably, some older homeowners feel overwhelmed by the process of moving and prefer to remain in their long-term residences.
Challenges to Selling
Harvey points out that there is a shortage of appealing property options suitable for older adults wishing to downsize. This scarcity adds to the inertia among older homeowners, who may find the prospect of moving daunting due to emotional ties to their homes, as well as the complexity of the selling process itself. The combination of limited choices and reluctance underscores a broader issue that prevents older homeowners from entering a more supportive housing market for younger buyers.
Further complicating this situation are the current stamp duties that discourage sales. Proposals for supporting measures similar to the downsizer contribution for superannuation exist, whereby up to $300,000 from the sale of a home can be contributed to an individual’s superannuation fund.
Implications of Rate Cuts on Buyer Activity
As the Reserve Bank continues to cut interest rates—most recently at 3.60%—parking concerns about declining supply, buyers are capitalizing on lower borrowing costs. This economic climate has resulted in renewed interest in property acquisitions, even as new listings fell by 8% year-on-year in July across various capital cities.
The outlook among property experts is bullish, with the expectation that additional interest rate cuts will further stoke buyer activity, particularly for suburban homes. The demand for family properties continues to trend upward, with buyers motivated by access to desirable school zones and amenities.
In conclusion, initiatives aimed at encouraging older Australians to sell their homes could unlock significant housing supply. The resulting changes would not only benefit the older homeowners looking to downsize but also help younger buyers gain access to the housing market. Though challenges remain, the proposed reforms could create a path to a more balanced real estate landscape, addressing current market dynamics.
