Downsizing? Why reality differs from narrative
Every now and then, a column topic comes along that perfectly illustrates the collision between personal lifestyle choices, public policy and our national demographic challenges.
Downsizing in retirement is one such topic.
In theory, it’s a no-brainer, a true win-win. Retirees move to more suitable, easier-to-manage homes in walkable neighbourhoods, collect a good sales price for their old home, and in doing so, free up a larger dwelling in the commuting belt for a younger family.
But reality rarely follows the script.
The public narrative assumes that Australians either downsize in their mid-50s once the kids move out or immediately after retirement in their mid-60s, yet many never do.
According to AHURI research, about 39 per cent of people over 75 have already downsized their home. An evenly sized share (39 per cent) of the 75+ cohort said they would never consider downsizing.
Putting these two insights together, we can assume that if you haven’t downsized by age 75, you almost certainly never will – at least not on your own accord.
This isn’t just a local trend.
I scanned across reports from the United Kingdom, Canada, New Zealand and the United States, to find the same pattern: downsizing mostly happens in the late 50s through to the early 70s. After that, mobility declines steeply.
People become more attached to their homes, health issues make moving harder, and many simply don’t want to leave the community, the social networks, they’ve built over decades. The older we become, the more set in our ways we tend to become.
What drives the downsizing decision?
You might like
For many, it’s the big life transitions. Retirement is an obvious trigger: Your income drops, lifestyle changes, and maintaining the sizeable family home becomes an ever-bigger burden.
In a National Seniors Australia survey, retirees said they moved because a smaller home suited their needs once the kids left. An AHURI report found that lifestyle and financial considerations are the most common reasons behind the decision to downsize. In these moves, the downsizers were in the driving seat.
Unfortunately, downsizing is often prompted by less happy events. Health problems, the death of a partner, or divorce in later life might force us to downsize.
When discussing downsizing, we tend to think of homeowners and forget about renters. For the sizeable cohort of older renters downsizing is financially even more impactful. Why would you rent bedrooms that you don’t frequently utilise?
Renters tend to have fewer choices, experience more financial pressures, and have less stability. Research shows that older renters are much more likely to be forced to move.
Among homeowners, some downsizers switch to renting. The logic is clear: buying is a more cumbersome undertaking. The decision to downsize forced you to reflect on your life at least a little bit and you become aware of your mortality.
Maybe the sale of your family home pocketed you a million dollars at age 70. You move into a nice two-bedroom apartment with your partner on the Sunshine Coast for $750 a week. That’s $39,000 a year or $390,000 a decade.
After this, you might consider a retirement village or an aged-care home if your health declines. The point is that downsizing is the start of a new phase in your life. You aren’t sure if the new location, the new property type, works for you so you rent first. As a renter, you will also not need to worry about the maintenance as much as the landlord will have to organise repairs and such.
So, what’s stopping more Australians from downsizing?
Active financial disincentives are one piece of the puzzle.
Until recently, selling the family home could reduce your age pension eligibility because it increased your assessable assets. Recognising this, the government extended the exemption period, giving retirees time to reinvest or relocate without penalty.
Stamp duty is another disincentive. Some states have started offering concessions to older Australians looking to right-size their housing, but the overall system still discourages mobility. Through stamp duty, we tax movements heavily and ownership lightly.
This is a great model if you want people to stay put, but a terrible model if you want to encourage constant rightsizing across the property market.
On top of this, higher labour mobility improves productivity – since Australia urgently needs to improve productivity, higher labour mobility would be highly welcome.
We are not talking about the labour mobility of the downsizers here, since most of them will already be retired. The improvements in labour mobility would stem from working families having more housing stock in attractive commutable suburbs available once Baby Boomers downsized.
Another barrier to large scale downsizing is that there aren’t enough suitable homes to downsize into. Seniors want single-storey, low-maintenance dwellings in the same community they’ve lived in for decades.
Stay informed, daily
Such properties are in short supply. As we often discuss in this column, the NIMBYism in the middle suburbs where Baby Boomers are residing in their family-sized homes ensured that very little downsizer appropriate housing stock was added locally.
Baby boomers wanting to downsize will struggle to find a local downsizer apartment and are forced to choose between downsizing and staying relatively local.
Sometimes, the partner doesn’t want to downsize. This means that downsizing is postponed until the partner issue solves itself.
Should we encourage more downsizing?
That brings us to an important question: should we encourage downsizing more actively?
From a housing policy point of view, yes.
Downsizing improves the efficiency of the housing market and better utilises available bedrooms. It lets growing families access bigger homes, helps older Australians access liquid capital, and minimises urban sprawl.
If we can’t build the 1.2 million homes that Australia needs according to the Labor government in the next five years, we should heavily pull the policy lever to encourage downsizing. We can think of financial incentives to encourage downsizing, but we will also need to provide downsizer apartments near the current empty-nester Baby Boomer clusters – not a quick fix.
Since for the next 15 years the downsizers will be mostly members of the asset-rich and big Baby Boomer generation (born 1946-63) a downsizing boom would have a big effect on the housing market.
This is exactly the right time to encourage more downsizing.
The oldest baby boomer is 79 years old, and we learned at the beginning of this column that if you haven’t downsized by your mid-70s, you probably never will.
On a personal level, I want to encourage Boomers to think about the benefits of downsizing while both partners are still healthy and active.
In a previous column I encouraged older Australians to get comfortable with the idea to “die with zero”. Instead of regurgitating old arguments, I will just have you read my old column.
At this point we must acknowledge that we already try to encourage a bit more downsizing: Australia’s “downsizer super contribution” scheme has had a real impact.
Since 2018, tens of thousands of Australians have taken advantage of the policy, contributing billions to their retirement savings using proceeds from selling the family home – we of course have no way of knowing if these Australians would’ve downsized even without the super contribution scheme.
Please remember, that we aren’t forcing anyone to move out of their home – this is still a free country.
Conclusion
That leaves us with a simple takeaway: If you haven’t downsized by 75, odds are you never will.
Life has settled, habits have formed, and your attachment to the family home (even if it’s oversized and a hassle to manage) is probably bigger than to quite a few family members. For everyone else, the window of opportunity to downsize is smaller than you might think.
The sooner we get our policy settings aligned with that reality, the better.
Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His podcast, Demographics Decoded, explores the world through the demographic lens. Follow Simon on Twitter (X), Facebook, or LinkedIn.
