Older women often rent in poverty – shared home equity could help some escape

Many older Australian women face insecure futures. Those who are single, divorced or widowed are much more likely to suffer poverty, housing stress and homelessness.

Our new Grattan Institute proposal for a national shared equity scheme^[1] could help many escape that fate.

Single women who rent rather than own their homes are at the greatest risk of poverty in retirement and are the fastest growing group of homeless Australians^[2].

They are financially vulnerable because they are more likely to have worked in low-wage jobs^[3], are more likely to have worked part-time^[4] or casually^[5], and are more likely to have taken long breaks from paid employment to care for others.

In later life, women experience the full consequences of lower lifetime earnings, typically finding themselves with less super^[6] than men and in many cases missing the opportunity to buy a house or losing the half share in a home they had.

Women who have separated by age 65 are three times^[7] as likely as still married-women to rent, and they have two-thirds^[8] the assets of separated men.

Home ownership matters in retirement

The home is typically a family’s biggest asset. When couples split, one or both partners often lack the equity to buy a new home.

Only 34% of the women who separate and lose their home manage to purchase another one within five years, and only 44% manage it within ten years.

Many older women who rent have more than enough savings for a deposit but can’t buy because they won’t stay in the workforce long enough to pay off the mortgage by the time they retire.

This condemns many to poverty. Nearly half^[9] of retired renters live in poverty, including 63% of the retired single women who rent.

That’s because retirees with mortgages spend less and less as they pay them down whereas rents keep going up.

The typical outright owner aged over 65 spends just 5%^[10] of income on housing, compared to nearly 30% for the typical renter.

A national shared equity scheme would help

Whoever wins the election should introduce a national shared equity scheme^[11].

Under our proposal the federal government would co-purchase up to 30% of the value of the home, taking up to 30% of any capital gains when it is eventually sold.

Limits would include a requirement for buyers to have at least a 5% deposit, be earning less than $60,000 for singles and $90,000 for couples, and to buy a property priced below the median for their city or region.

The government would not charge rent or interest in exchange for its 30% stake.

However, purchasers would be required to cover all costs associated with buying and selling the home including conveyancing and stamp duty and ongoing costs such as council rates and maintenance.

Read more: 400,000 women over 45 are at risk of homelessness in Australia^[12]

The scheme should start with a trial of 5,000 places.

Although not aimed specifically at separated older women, they would be among those most likely to benefit.

Shared equity would reduce the size of the loan many women need to take out to buy a home, making it possible to pay it off by retirement, including by using some of their super.

Women that lose their home during a separation could use the government’s 30% stake to quickly get back into the market.

The targeted scheme we propose should have a modest impact on home prices.

Read more: What matters is the home: most retirees well off, some very badly off^[13]

Even if it were to eventually offer 10,000 shared equity loans a year, with each buyer purchasing a $500,000 home, it would only add at most $5 billion in housing demand each year to a $9 trillion market, and probably less.

The direct cost would be small – $220 million over the first four years.

In fact, the scheme might be a net positive for the budget in the long term, if house prices rise faster than the interest rate on government debt.

Existing state schemes, such as WA’s Keystart^[14], have turned a profit.

It shouldn’t be a substitute

Shared equity is no substitute for governments taking the tough decisions needed to make housing more affordable, such as loosening planning laws^[15] and winding back housing tax breaks such as negative gearing and the capital gains tax discount.

And the federal government should assist older women already renting in poverty with a 40% boost to Commonwealth Rent Assistance, and a further increase to JobSeeker^[16].

But the scheme we are proposing would keep the dream of home ownership alive for many older women.

References

1. ^{^} national shared equity scheme (grattan.edu.au)
2. ^{^} fastest growing group of homeless Australians (grattan.edu.au)
3. ^{^} low-wage jobs (www.abs.gov.au)
4. ^{^} part-time (www.abs.gov.au)
5. ^{^} casually (www.abs.gov.au)
6. ^{^} less super (grattan.edu.au)
7. ^{^} three times (treasury.gov.au)
8. ^{^} two-thirds (treasury.gov.au)
9. ^{^} half (grattan.edu.au)
10. ^{^} spends just 5% (grattan.edu.au)
11. ^{^} national shared equity scheme (grattan.edu.au)
12. ^{^} 400,000 women over 45 are at risk of homelessness in Australia (theconversation.com)
13. ^{^} What matters is the home: most retirees well off, some very badly off (theconversation.com)
14. ^{^} Keystart (www.keystart.com.au)
15. ^{^} loosening planning laws (grattan.edu.au)
16. ^{^} further increase to JobSeeker (grattan.edu.au)