Over recent years, thanks to increasing superannuation balances and property values, wealth in Australia has been growing. The 2024 UBS Global Wealth Report released in July states that Australia has the second highest level of median household wealth amongst 56 nations, second only to Luxembourg. At the same time, we rank third in terms of wealth equality as calculated by the Gini co-efficient, again behind Luxembourg and also Sweden.
In the same month the Productivity Commission released its report Fairly equal? Economic mobility in Australia. This report indicates that despite increased household wealth,
poverty has been steadily rising over the past two decades. Of the 14 per cent of Australians who experienced poverty in 2022, people over 65 were most likely to experience persistent poverty, that is poverty that lasts for three years or more.
This accords with the Commonwealth Treasury’s 2020 Retirement Income Review (RIR), of which I was a co-author, which found that while the Australian retirement income system is effective and sound, with broadly sustainable costs, there are two groups of retirees who are vulnerable to living in poverty: those who rent in the private residential real estate market, and early retirees, who leave the workforce prior to age pension eligibility.
Rent assistance failed to keep pace
Single renters are the most disadvantaged, followed by early retirees. The latter group are usually forced into early retirement by ill health, carer responsibilities, or loss of job opportunities. Renters who retire before the age pension have the highest level of financial distress in retirement. Too often, individuals in this group will expend any superannuation they might have before reaching age pension eligibility.
In previous times, governments played a major role in the provision of social and public housing. Indeed, between the 1940s and the 1970s, following the 1944 Commonwealth Housing Commission report which attested to a shortage of 300,000 dwellings, Australian governments built around 23 per cent of all new homes to provide secure accommodation for those on low incomes and affordable rentals for middle income earners (Note 1). Subsequently, housing supply agreements were drawn up between the Commonwealth and states, but these have reduced over time, becoming increasingly targeted at those in highest need.
In the early 1990s Commonwealth Rent Assistance (CRA) was introduced to provide support for those in private rental markets. While the CRA was designed to relieve the burden, indexation to the CPI has meant that it has failed to keep pace with rapidly escalating housing costs.
The CRA pays 75 per cent of rental costs above a specified minimum and, as at March 2024, was capped at $328.20 for single renters, and $406.40 for couple renters per fortnight. From September 2024, these caps will increase by 10 per cent and be indexed going forward if the necessary legislation from the 2024-25 Budget is passed. But with national median rentals reaching $600 per week (i.e. $1,200 per fortnight) at the end of the March 2024 quarter (Note 2), it is evident that for many private market renters, the CRA does not adequately cover housing costs.
Highest risk cohort of financial distress
In 2020, the RIR found that the CRA only covered around 45 per cent of retirees’ rent expenses. For two-thirds of recipients, it covered less than one third. Single renters are most disadvantaged, and single women renters comprise around two thirds of retirees on the CRA. Modelling from the RIR showed that even with a 40 per cent increase in the maximum CRA rate, the number of renting retiree households in poverty would only be reduced by around 3 per cent. The situation has only worsened since then.
At the same time, the cost of the CRA is blowing out. In 2022–23, the federal government spent $4.9 billion on these payments, up from $1.4 billion in 1993–94 when it was introduced. The cost of the CRA is expected to increase to $6.6 billion in 2024–25 with the additional cost of the 10 per cent increase in caps. (Note 3.)
With lower home ownership rates among younger Australians – our future retirees – a better solution for assisting housing costs in retirement is badly needed. The high levels of recurrent CRA expenditure are most unlikely to be sustainable and/or resolve the issue into the future.
Addressing the housing challenge
To tackle these challenges, the federal government has established the National Housing Accord (Note 4), which has set an aspirational target of 1.2 million new homes over five years from mid-2024. States and territories have agreed to match a federal commitment to build a combined target of 20,000 affordable homes in the next five years. The Accord has a broad agenda including providing enabling infrastructure for housing development, updating land use plans and streamlining building approvals as well as providing tax incentives for build-to-rent developers. The agenda also encourages older Australians to downsize with the downsizer super contributions and asset test incentives for age pensioners who sell their homes. Training more construction workers will also be a critical component.
While rising property prices have enhanced median wealth across the nation, they impact very adversely on renters. Government has stepped up with plans to address the issue, and funds such as HESTA and AustralianSuper have become part of the solution by investing in build-to-rent projects, but the problem won’t be resolved overnight.
In the meantime, super funds can play an important role in understanding and supporting renting retiree members in these very difficult situations. Funds might also choose to promote the First Home Super Saver Scheme which allows younger members to save for a home deposit by making withdrawable voluntary super contributions of up to $50,000 at a tax preferred rate.
Dr Deborah Ralston is a Professorial Fellow at Monash University and board director with more than 25 years’ public and private sector experience across education, banking, superannuation and financial technology. She is a member of The Conexus Institute Advisory Board.
Notes:
- Reforming Rent Assistance: Ending Rental Stress Across Australia. Maiy Azize, Anglicare Australia. 2023.
-
PropTrack Rental Report – March 2024 Quarter. Cameron Kusher, realestate.com.au
- Housing assistance in Australia 2024. Australian Institute of Health and Welfare, Australian Government. 2024.
- Delivering the National Housing Accord. The Treasury. 2023.
