Government should 'stay away' from equity release scheme: Planner

by 27 Nov 2013
The latest proposal to introduce a Government-backed scheme allowing seniors to contribute half the annual value increase of their homes towards funding aged care is unnecessarily complex and expensive says Brenton Harris, financial planner and CEO of POPI.

The proposal comes from the Productivity Commissions latest report, and suggests "using some of the annual growth in the housing equity of older Australians to ensure higher quality options for aged care services and lower fiscal costs".

The Commission suggests this move could help cut Government spending by 30%.

Harris, however, says the proposal would be complicated and difficult to implement.

“Although the concept has some merit it poses many questions. First and foremost, where will the Government find the funds in the first place? We are talking about a percentage of the population currently at 13% expected to grow to 21-23%% by 2046,” says Harris.

Questions around how and how often the property will be valued and how the Government will deal with improvements made to the home by the owner also need to be considered, says Harris, as well as the possibility that house prices will go down or the market will be flooded with home owners selling their properties.

“Our younger generation is already faced with challenges of accessing the property market, will a scheme that forces them in retirement to use their home to fund aged care service discourage them from even starting in the first place? Property has long been the back bone for family security and wealth creation for generations, a loss of confidence in property could see more economic problems faced by our younger generation in years to come as they arrive at retirement without homeownership.”

Currently the Government is already a provider in the equity release market through the pension loans scheme, which allows seniors not eligible for pension to access capital tied up in real estate assets. Two state governments and a number of local councils also operate municipal rate deferment schemes linked to housing equity.

Incentivising investors to use already established wealth creation and retirement schemes would be a more sensible option than taking on the cost of funding a scheme such as the one proposed by the Productivity Commission, says Harris.

“The Government should stay away from such a complex and socially sensitive issue. Private investment is a much better solution for those wanting or needing help.”


  • by Patrick McMenamin 27/11/2013 9:17:42 AM

    In the USA a large % of the population live in "mobile homes". These are not caravans but simply a large comfortable modular home, factory manufactured, which are technically not permanently located on a site but in reality are rarely moved. They are as good quality as any "project home" site built in Oz. You buy the house with chattel mortgage finance and you rent the land. Sites are arranged in well maintained complexes (parks) and the site operator reticulates utilities within. I have stayed with relatives in one, there is nothing cheap and nasty about them and they do not end up as ghettos. In hundreds of cities they are available for $60-$100K. Village complexes or parks are owned and operated by institional investors and if this in not shared equity, what is? What we lack is imagination and what we have is intergovernmental inertia.

  • by Paul 27/11/2013 9:17:46 AM

    Government will never become a bank to the seniors market but it does have options such as funding to private sector through AOFM, or giving a rebate to seniors who take up/maintain Private Health Insurance with Equity Release, thereby taking pressure off the Health budget and public hospital waiting times.

  • by Old Joe 27/11/2013 3:15:59 PM

    The retirement time bomb is coming. My advice is for the govt to relocate these people to the country and regional areas buy up cheap land and look after them.