Encouraging empty nesters to downsize and free up their larger homes for younger families to buy is seen as one of the solutions to Australia's housing affordability challenge.

It means the ageing homeowner population can move to housing that better suits their needs, while unlocking equity from their property to help fund their retirement.

So, why are many older Australians reluctant to make the move?

While older Aussies have a strong preference to 'age in place', they also face barriers if they do want to 'rightsize' - the term the industry prefers to use, to dispel the myth that downsizing means giving up a quality of life.

Rightsizing is important in freeing up housing supply but also in ensuring that housing fits people's needs, PropTrack economist Angus Moore said.

"That's fundamental to solving housing affordability," Mr Moore said.

"The supply of large dwellings is not infinite and so freeing those up would make them more affordable for people who need extra space."

There are a lot of disincentives to downsizing, he conceded, on top of the understandable sentimental attachment people have to their home of many years.

"Removing some of those disincentives would be very beneficial for housing affordability, and for ensuring people are housed in a way that meets their needs."

Many older Australians want to age in place and remain in their long-time home. Picture: Getty

---

Ben Myers, the executive director of retirement living at the Property Council of Australia, said from a broad economic and social perspective, there is a strong argument for governments to encourage people to rightsize to a home that better suits their needs.

"It frees up those homes for the next generation of families who can benefit from having a larger home in the suburbs and potentially a more affordable home in the suburbs," he said.

Mr Myers said many older Australians face barriers to rightsizing and a key solution is providing incentives for them to move into more suitable housing options, especially purpose-built, age-friendly communities.

"I think dealing with some of those financial barriers is probably a critical one, helping smooth the way for people to unlock their home equity without having the punitive impacts that exist presently for people."

Mr Myers emphasised the importance of people being able to move into a home that supports them to live independently for longer.

"We certainly wouldn't be advocating that people must rightsize or should be forced out of their home," he said.

"It's about ensuring that people have options. There are probably a lot of people at the moment who don't have options.

"And they don't have options because it's not affordable - namely whether that's through the loss of the pension or there's just a lack of supply of suitable properties, which pushes up prices - or it's not accessible, there's nothing in their local community that appeals to them without them having to move out of that local community network."

Housing affordability is a hot topic, with rightsizing viewed as part of the solution. Picture: Getty

---

Rightsizing back in the spotlight

With housing affordability a hot topic, downsizing is back in the spotlight.

The issue came up during the federal election campaign, with the then-coalition government promising further steps to encourage empty nesters and pensioners to downsize their home.

The eligibility age for the downsizer contribution scheme has already dropped from 65 to 60 under a 2021 federal budget measure.

It allows people to contribute up to $300,000 into their superannuation from the sale proceeds if they downsize their home. Australians have made more than $9.4 billion in downsizer contributions since the scheme's introduction in July 2018.

The coalition proposed reducing the minimum age even further to 55 and giving pensioners two years - double the current time - to restructure their assets after selling the family home without impacting their pension.

Labor committed to matching the "modest" downsizing announcement during the campaign, and has a wider housing reform agenda after winning the election.

Downsizing or 'rightsizing' is seen as a way to free up large homes for younger, growing families. Picture: Getty

---

Mr Myers described the announcements as important steps, but said there is still a need for broader action on housing supply and a focus on ways to mitigate the impact of Australia's ageing population.

"We would argue at an industry level that age-friendly communities or retirement living as they are in Australia are one of the few commercial and successful means of mitigating some of those ageing impacts, yet government continues to want to make it harder for investors by changing regulation.

"There's very little support in planning schemes and the tax structures are complicated so we don't have the supply. And it's very difficult to get the supply of purpose-built, age-friendly communities because government - state, federal and local - just aren't focused on the need to support healthy ageing and reduce those eventual impacts on the health and aged care system."

Australia has millions of spare bedrooms

The latest data shows there are about 13 million spare bedrooms in Australia.

According to the Australian Bureau of Statistics' latest Survey of Income and Housing, 77% of households had at least one bedroom spare in 2019-20.

It also found almost one in 25 households required at least one additional bedroom to meet their requirements.

"There's not a bedroom shortage in Australia, there's a housing shortage," Mr Myers said.

"There's plenty of owner-occupied homes and it's everyone's right to have a home with extra bedrooms, but probably the fastest and cheapest way that any government could be accommodating more people is by incentivising people to rightsize."

Older people can remain in bigger family homes in the suburbs for a range of financial and emotional reasons. Picture: Getty

---

An Australian Housing and Urban Research Institute report found many older people considered spare bedrooms necessary and used them as guest rooms, studies or dedicated rooms for children or grandchildren.

The 2020 report showed the main reasons people downsized were lifestyle, financial reasons, the garden or property required too much maintenance, and those who felt 'forced' to move, such as those on very low incomes and renters.

Mr Myers said older Australians are increasingly rightsizing but "we're still talking small numbers in the bigger scheme of things".

A Productivity Commission report released back in December 2015 found older Australians strongly prefer to age in place, noting most people are happy staying in their family home despite a common perception that such homes are too big for them.

Research has shown the strength of the emotional attachment people have to their home can be a substantial deterrent to downsizing.

"For many people that's probably a very compelling reason why they want to stay in their home but I think it's also probably part of the Australian culture, a fierce sort of independence and that generational aspiration of having a house with a big backyard," Mr Myers said.

"That is changing in capital cities where apartment living is becoming more aspirational for lots of people and retirement communities are very much responding to that through the modern design and facilities that they're providing.

"So there is a change, but I think the idea of rightsizing is a big decision and a difficult decision for many people to consider and ultimately make."

Downsizing can mean moving to a smaller or more suitable home. Picture: realestate.com.au/buy

---

The AHURI research found older Australians viewed downsizing as more than just a move to a cheaper home with fewer bedrooms and a smaller land area. Instead, it was associated with internal and external spaces becoming more manageable, a reduction in belongings and bringing a financial benefit to the household.

Mr Moore said the size of a dwelling and number of bedrooms are not the only considerations.

"Being located close to family that may have moved out of home will matter as well, or being within walking distance of amenities may become more important.

"The disincentives in place like stamp duty don't just prevent people from downsizing their house, they prevent them from moving home to something that better suits their needs."

The financial barriers to downsizing

Mr Moore said the two key barriers to rightsizing are stamp duty and the potential impact of downsizing on eligibility for the age pension.

"Stamp duty is a very big disincentive and a big impost. You're looking at paying tens of thousands of dollars to move home - it makes it very expensive to downsize.

"Reforms that reduce the cost of moving home - and that means either lowering or eliminating stamp duty rates - would have a lot of benefits broadly but specifically in encouraging people to downsize when their home is bigger than they need."

Mr Myers said the costs of selling a home and moving are quite high, but the potential impact on someone's pension is one of the biggest barriers for many people contemplating a move into a more age-friendly home.

He said it's a significant issue for many people on a pension who don't have a home that is worth enough to sell and fund their income or who have a modest potential to unlock capital.

"If you're selling a home that's worth a few million dollars in Sydney or Melbourne then it may be more tenable for you to get income from that money that replaces a pension.

"If you're selling a home that's maybe worth a million dollars or so you're probably going to be on the cusp of losing your pension and not being able to replace the income through investment income."

The family home is not included in the pension assets test, but the proceeds from the sale may be assessed as deemed income.

Calls to remove the barriers to downsizing

Mr Moore said removing barriers to downsizing should be the goal.

"If staying in your home fits your needs, there's no need to downsize.

"What I'm advocating is removing barriers to moving home, both for downsizing and upsizing, because the home that you're in now may have fit your needs 10 to 15 years ago but people's needs change and we shouldn't put barriers to people moving home to what they need."

Experts argue the barriers to downsizing should be removed, to ensure people have options. Picture: realestate.com.au/buy

---

Mr Myers said many people looking at moving to a purpose-built, age-friendly community could be unlocking a lot of equity.

The 2021 PwC/Property Council retirement census, released in February this year, showed the average independent living unit sale price is 55% of the median house price in the same suburb, due to the strong house price growth during the pandemic.

Mr Myers said age-friendly communities also had the benefit of design features to support older people such as wider hallways and doorways, and subtle differences in door handles or power points and light switches. Another benefit was the community itself and being socially active.

Lifestyle and retirement communities have purpose-build, age-friendly homes and are one of the alternatives when downsizing. Picture: realestate.com.au/buy

---

Mr Myers said a retirement community won't suit everyone.

"But there needs to be a focus from government on ensuring affordable and accessible alternatives to living in a suburban home.

"Whether that is an apartment or whether it's a retirement community, I think all rightsizing has its benefits.

"We would suggest and data certainly suggests that rightsizing into a purpose-built, age-friendly community is the best option, but people need to really have affordable and accessible choices in their community so they can do whatever suits them and helps them with their best life."