Home com­forts slip­ping away

Fewer el­derly peo­ple own their own prop­er­ties, and that’s a recipe for ris­ing poverty among the over-65s

The New Zealand Herald - - ECONOMY -

The risk is grow­ing that we will see more and more older peo­ple liv­ing in hous­ing-re­lated poverty. That is one con­clu­sion of the Stock­take of New Zealand’s Hous

ing re­leased this week. It re­flects a toxic com­bi­na­tion of trends.

One is the de­clin­ing rate of home own­er­ship, which means that more of the 65-plus age group will be rent­ing — and that age group is grow­ing apace as the pop­u­la­tion ages.

The 2013 cen­sus found home own­er­ship rates for ev­ery age group be­tween 30 and 55 down by be­tween 10 and 12 per­cent­age points com­pared with the 2001 cen­sus. The num­bers from this year’s cen­sus are likely to be even worse.

The level of New Zealand Su­per­an­nu­a­tion as­sumes that by the time peo­ple re­tire, they will at least own the roof over their heads.

But these days only 72 per cent of older peo­ple live in a mort­gage-free house, the stock­take re­port says. That is down from 78 per cent in the mid2000s and 83 per cent in the mid-1990s.

As of the 2013 cen­sus, 81 per cent of the 65-plus pop­u­la­tion were liv­ing in owner-oc­cu­pied dwellings. The other 19 per cent breaks down into 10 per cent in pri­vate sec­tor rentals, 4 per cent in so­cial hous­ing and 5 per cent in in­sti­tu­tions (like res­i­den­tial care fa­cil­i­ties).

The sec­ond ele­ment of this toxic brew is en­trenched in­equal­ity of in­come and wealth, in­clud­ing among older New Zealan­ders.

If some­one reaches re­tire­ment age with­out own­ing a house, it is not likely to be be­cause he or she has in­stead opted to ac­cu­mu­late a lot of fi­nan­cial as­sets.

The most re­cent data from Sta­tis­tics NZ tell us that as of June last year, more than half of the 65-plus age group have an in­come that puts them in the sec­ond low­est quin­tile — in dol­lar terms that means an an­nual in­come be­tween $12,700 and $25,800.

That may be enough if you live in a multi-per­son, owner-oc­cu­pied house­hold. But if you are sin­gle and rent­ing, good luck sur­viv­ing on that sort of money.

The best source of in­sight into the in­come dis­tri­bu­tion and poverty rates are the hefty House­hold In­comes re­ports com­piled by Bryan Perry of the Min­istry of So­cial De­vel­op­ment. Last year’s re­ported that 9 per cent of the 65-plus pop­u­la­tion fell be­low one stan­dard def­i­ni­tion of the poverty line (60 per cent of the me­dian in­come af­ter hous­ing costs). For sin­gle su­per­an­nu­i­tants the pro­por­tion was 15 per cent, and for cou­ples it was 5 per cent.

The third com­po­nent of this recipe for elder poverty is the state of the hous­ing mar­ket.

The phys­i­cal de­mand/ sup­ply im­bal­ance will take years to cor­rect.

In the mean­time, in much of the coun­try the rental mar­ket is very much a seller’s mar­ket; the mar­ket power lies with land­lords.

But they face a chang­ing en­vi­ron­ment. The Healthy Homes Guar­an­tee Act, pro­vided it is prop­erly en­forced, will im­pose higher costs on some of them. And there is the prospect that the Cullen tax re­view will rec­om­mend a cap­i­tal gains tax. Even if that is three years and an elec­tion away, the prospect would be ex­pected to turn land­lords’ at­ten­tion more to rental yields than cap­i­tal gains for a re­turn on in­vest­ment, es­pe­cially in an en­vi­ron­ment of ris­ing in­ter­est rates.

Fur­ther ahead, a two-year-old re­port ti­tled Home­less Baby Boomers by Alan John­son, a re­spected so­cial pol­icy an­a­lyst for the Sal­va­tion Army and one au­thor of this week’s hous­ing stock­take, makes sober­ing read­ing.

By 2030, when the youngest baby boomers re­tire, the pop­u­la­tion over 65 is pro­jected to have in­creased by around 400,000, to 1.1 mil­lion or 22 per cent of the to­tal pop­u­la­tion.

Un­der a range of sce­nar­ios, home own­er­ship rates among over-65s will be lower then than they are now; the sce­nar­ios only dif­fer in how much.

On the most pes­simistic sce­nario that John­son mod­els, the num­ber of peo­ple over 65 and liv­ing in pri­vate rented ac­com­mo­da­tion will in­crease by 190,000 or more than 240 per cent. The most op­ti­mistic sce­nario sug­gests growth of 110 per cent or an­other 80,000 peo­ple.

The struc­tural de­cline in home own­er­ship rates ap­plies as much to younger baby boomers as it does to the Gen­er­a­tion X which is fol­low­ing them, John­son con­cludes, and it means that more and more peo­ple will reach re­tire­ment with­out the se­cu­rity, and im­puted in­comes, which come about through home own­er­ship and lower hous­ing costs. It also presents a fis­cal chal­lenge. The num­ber of su­per­an­nu­i­tants re­ceiv­ing the ac­com­mo­da­tion sup­ple­ment has been ris­ing steadily. At just un­der 40,000 as of June last year, they rep­re­sented 5.4 per cent of su­per­an­nu­i­tants, half as many again as in June 2010.

The trends out­lined above sug­gest that num­ber is set to keep climb­ing.

This year the gov­ern­ment will spend $1.1 bil­lion on the ac­com­mo­da­tion sup­ple­ment (al­to­gether across the whole pop­u­la­tion). It is due to be in­creased in April, for the first time since 2007, and is fore­cast to rise to $1.5b by 2020/21.

The ex­tent to which the ac­com­mo­da­tion sup­ple­ment is a sub­sidy to land­lords rather than ten­ants is un­clear, the stock­take re­port says. That will be tested by what hap­pens to rents this year as the be­lated in­crease kicks in.

“The sup­ply side pres­sure in pri­vate rental hous­ing mar­kets sug­gests that much of this in­crease will be soaked up in even higher rents. If this is the case then the need for a rad­i­cal re­view of the ac­com­mo­da­tion sup­ple­ment will be more ap­par­ent.” Quite.

Ul­ti­mately, the so­lu­tion to this and other as­pects of the hous­ing cri­sis will have to come from in­creased sup­ply.

The bar­ri­ers to over­come there are well known, on land, in­fra­struc­ture, and cap­i­tal.

And, cru­cially, ca­pac­ity con­straints in the build­ing in­dus­try.

Just as well, then, that our lead­ing con­struc­tion com­pany is such a model of smart man­age­ment and vig­i­lant gov­er­nance. Oh, wait . . .

More and more peo­ple will reach re­tire­ment with­out the se­cu­rity, and im­puted in­comes, which come about through home own­er­ship

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