Retiring with a Mortgage: The New Normal?

0:00In this episode we interrogate a quietly explosive trend. More Australians are hitting retirement still carrying a home loan and it's reshaping how households use super access to age pension and think about the family home. We're going to unpack what the latest data shows. For example the share of 55 to 64 year old homeowners with mortgages has climbed sharply while more than a quarter of lumps some super withdrawals go to housing related uses. So why the owner outright buy 65 assumption no longer holds and also what it means for cash flow, risk and intergenerational plans. Welcome to the elephant in the room. This is the podcast where we'd love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of FoxTel's location, location, location Australia, author of auction ready and co-host of your first home buyer guide. Hi, I'm Chris Bates, ex financial planner and mortgage broker. Currently ranked number three

1:01in the annual MPA top 100 mortgage broker awards. Before we get started, everything we talk about today is not personal advice and we recommend you engage the services of a license and experience professional. I guess today is Harry Chamay, a veteran retirement and wealth specialist with nearly three decades across planning, asset consulting and super product design and co-author of the growing debt burden of retiring Australians, scintillating topic. Harry's going to help us separate signal from noise on later life housing debt, the real trade-offs between extinguishing loans versus preserving super and the practical sometimes uncomfortable ways households can use their balance sheet to smooth consumption without resorting to magical thinking. So welcome, Harry, it's really great to meet you and I think this is a very, very interesting topic we're going to get some meat out of this. Thank you, Veronica. Great to be here with thanks to you and Chris with info. We met a long time ago, but when you're building sort of one of the first Robo advice platform, something called Clover and you know, you can sort of explain where, you know, where

2:03that was in the journey, but how's that and got you to where you are now, right? And dealing with this topic, it's interesting to sort of see how you sort of landed here. Yeah, great question. So we've probably known each other for like over 10 years, right? Because Clover was sort of like, we were building that in sort of 15, 16, and then we might have like launched publicly in 17. But yeah, so Clover was effectively, yes, a Robo advisor as they now call it, digital advice, but it was very much really built for millennials because even back then, we realized that one of the biggest use cases for advice was younger Australians locked out of the advice mark wanting to know how to get on the journey, particularly to build the deposit for first home, right? And they were dealing with really low high interest savings rates, which weren't really high at all. And so this was an alternative and the reason why we got into it was we realized that Australians were having to save longer and longer. Four years was expanding to six was expanding to eight was expanding to 10, and we were like, all right, at that kind of timeframe, maybe you shouldn't just stick your money

3:06in a high interest savings account and hope for the best. So long story short, after after we, we sold so much, I got back into well, my first love, which is advice, I started life as a financial planner. And now I helped super funds and other sort of institutions think about retirement, right? All the aspects of retirement. And one of those that is coming into frame, slowly but surely, is housing and the associated housing debt approaching retirement. So what has changed? What are you noticing? Huge amount. So let's step right back, right? So when I started as a planner, like late 90s, the concept of having a home loan approaching retirement was just nonexistent. I just never saw it. It never came up in conversations because the assumption was that you would comfortably pay off your home by the age of 60, if not 65. And back then, might be age pension, you could get it at between like 60 and 62, depending on gender and so forth. And so most Aussies were homeowners and had comfortably made that last payment to the bank

4:06before retiring. So that was what not even like 30 or years ago. Now, the new data says that for the pre-retire cohort, which I generally see is like 55 to 64, that's when you're really starting to sharpen up and think about retirement. If you go back to 1990, I think the stats are like about somewhere around 17 to 20% of them still had a mortgage at retirement. So the minority later stats we've seen are it's more than one and two. I think it's like 54% of Aussies approaching retirement who are homeowners still have some level of mortgage debt on the house as their virtual time. So I've got a bit of a theory here because I would imagine the simple thinking would be to say or logical thinking would say, well, as property prices go up, people have to go into more debt in order to get into the property market or so they might get into the market later. So therefore they're carrying more debt, their 30 years make some older when they're

5:08at the end of their mortgage. And so therefore they're more likely to be still have a mortgage at retirement age. That's the sort of simple way of looking at this. But I suspect that also the ease of access to finance, the relative ability for people to refinance during the lifetime of having that property means that they're drilling down into the equity, they probably do other things. And so it's not as simple as they can't pay it off in time. It's access to borrowing has changed the way we look at our homes. Would that be something that we need to be talking about here? That is very much part of the issue. And also the other part is flat lining incomes, right? So real income growth, which really, I mean, if you look at the numbers, it has stagnated since the GFC. I mean, you can argue whether it's 2008, 2015, 16, where you look at the longer term trends, people's incomes just haven't kept up, right? So property in property wealth, there's a lot of heavy lifting in Australia. So there's probably a couple of things. So I studied banking finance at

6:09uni, right? So I had to go back and learn all the backscorey. And definitely when you look at property, there's like two phases. One was probably in the men'sies era, where it was a policy to get Australians owning their own houses. So historically, it wasn't the case, right? We were probably more like a mix of owners and renters. But the men'sies government literally said, look, I think it's really good for stability of the population. And also for their advancement, that most Australians owned their own homes. So hence the green field filled out in Melbourne and Sydney and an encouragement for people to get out there and get the quarter acre blah blah blah. So 50s, 60s. And then the second phase is exactly what you mentioned Veronica, financialization, which is an 80s thing. So financial deregulation, that really was a sort of a Paul Keating Bob Hawk thing through the early 80s. You banks coming in from overseas, lots of restrictions on lending, which was eroded. So banks were literally like hamstrung in how much they could land to individuals for houses. And then that all sort of slowly went away

7:10in the 80s. So yes, those two things definitely encouraged people to aspire to home ownership, which I think is a generally good thing. And I'll come to why later on from a retirement perspective. And then the access to credit that definitely took off from the mid 80s, 90s onwards. And so here we are today with an aggregate about 2.4 trillion of debt against residential housing I mean, obviously people getting say in the 50s, you're talking about the cohort here and they've got mortgages right, whereas the big difference is 10, 20 years ago, very few of them had their home paid off and they were well ahead of their mortgage and they were looking to top up their soup. And a lot of people didn't invest till their home was paid off, right? That's the best ROI you can get on your savings. But you'd like to think that the advice industry is also potentially causes because they're like, oh, you know what, don't pay your home off as fast, invest, you know, get an investment property, put more money into your soup. But I just don't think that's the case,

8:11right? The advisors have found it quite hard to pitch, you know, tell clients to pay their mortgages off slower, right? Like, because it's been so ingrained. So it's not only upgraded, they're renovated, they've, you know, tried to enjoy life while pre-retirement. So they've almost should be right. Mate's retirement will take care of itself. And they haven't sort of given it the focus and dedication they needed. Like maybe their previous generation, like the 70s and 80 year olds were safe, safe, safe, safe, safe. And they realized that their parents didn't really enjoy life as they have a different view on it. It's all right. Do you think that plays into it? There's a fair point. You know, there's an element of that. We see it. I mean, even in my parents generation, right? So they're older to the baby boomers. And they're, yeah, coming out of that experience, World War II, it's very much three, three, three, three, safe, safe, safe. On your own, home, it's the best insurance policy you can have in old age, paid off before you finish work, come a job done, right? Whereas, yes, I'm a Gen X. I suspect you guys are probably more in the

9:11millennial side of things. But we do. Thank you. But I'm fully Gen X. Yeah, we grew up more like the 80s, the 70s, 80s babies. And it was like times are good. And Gen X was the first to really embrace university education. So we were the first to also get hit with, hit with X or whatever. With that additional education and skills, we wanted to go overseas. So we were the first to go. That's it. We're off to London for the two years. And we want to travel and blah, blah, blah. And we'll think about settling down the partner, the house, the kids later on. So there is a generational impact. And then we just, yeah, we enjoy life. And we like to do other things. So what has happened is if you look at the stats, right? Australians generally like staying at home for like 10, 9 to 11 years, depending on whether it's an apartment or a house. But yes, what we're on the convention before, the use of refinancing, potentially the support lifestyle has definitely increased. So I know one of the housing and urban research institute did a study a while back. And they realized that actually

10:13quite a significant number of people are in this sort of middle-aged cohort were increasing the mortgages without moving. And the only reason for that is, yeah, they're using it kind of like a virtual ATM potentially. And that's fine. It's just trade-offs though, right? Then it's just like, well, what happens at the back end? How do you make it work? What does that mean? You just have to think a bit more about it, rather than go, oh, she'll be right, mate. So at the back end, what are people doing to make it work? So you called it out before, Veronica, part of it is we're seeing definitely, depending on where you sit in the demographics and wealth-wise, there are a ramp of middle Australians who are homeowners because even while it's fallen, about 78 to 80% of Australians currently do get to the point of retirement as homeowners. So that's good. Problem is that a lot of them now are having to look for sources of capital to extinguish existing housing debt, right? That seems to be a preference. We haven't got to a sophistication, a level sophistication where people say maybe there's other ways of holding that, carrying this debt,

11:15converting this debt. But if they just want to get rid of it and a lot of Aussies do, what are their options? And a lot of them are looking to super, that that's clearly what we're seeing. And the latest data we have is that when you look at the lump sum withdrawals, the actual movements out of super, I think it was like 27, 28% of that was literally used for housing related purposes. As you say, like paying off debt or doing a Renault potentially, but very much housing related. The way my brain is was like, you know, when I downsized, I want to take my 300 grand or whatever it was, whatever I could do and put that into super, you're saying that the reverse is happening, people getting to retirement age and actually drawing down this super in order to either draw down, or pay down their mortgage. But is this also tiring? You said if they're not sophisticated, I'm not sure if that was your word, but not looking at sophisticated alternatives, the fact that they've got themselves into the situation is that because they don't fully understand what's happening every time they're refinanced, they don't actually get like a user like an ATM and they actually don't realize, you know, we've got this lack of financial literacy that we sort of know

12:19that we have this problem is that manifesting itself? Possibly. I mean, that's certainly the case that a lack of financial literacy and just the way compounding works, right? So both on the well side, what you're super balanced is today versus what it is in 20 years. And obviously, unfortunately, also on the credit side, which is how do these amortization schedules work out of each payment? You make how much is going to principle and how much is going to interest and how the changes over time. So because people don't understand that, they may think that they can pay off debt sooner than they actually do. That's definitely, I think, something that's a bit of a problem. But then also culturally, yes, the preference has been to be mortgage free at the point of retirement. The question now is, is that a realistic goal for Gen X and definitely for millennials? Because what we know is even today with boomers, right? So it's boomers who are retiring today. I'll wear out next, but at the minute, it's still boomers. The median home earning boomer approaching retirement

13:20now still has more than 200,000 of mortgage debt outstanding. So it's chunky, right? You've got to find a pretty big source of capital, if you're just going to make 200,000 of a $200,000 mortgage disappear. So it's a combination of all those things, maybe lack of financial literacy, maybe some not-grated vice along the way, and then just the shareway that the math works, I guess, through time. I mean, in your report, and I think it's an amazing report, I wish we'll put in the show notes, but you've you mentioned around Duval, such another obviously a big thing that happened, you know, we didn't stay with our partner forever now, we're like, there's always a better option, the grass could be greener, but you know, that obviously has a huge impact on financial welfare for people. So that's been a huge trend. I mean, their parents are probably living too long, right? That's what they're are. You mean, they thought Mum and Dad would die earlier, right? Like, and I'd get a huge inheritance. Like, you know, you think about it. There's two people who I've definitely advised clients in this space in the 55, and some you raise the conversation around inheritance, and they're like, oh no, it can't possibly talk about this,

14:22and it's so far down the line and, you know, and they genuinely don't, and then some of a light, no, no, no, Mum and Dad, it's all right. I reckon we'll get about two meals or whatever it is. And then they're going, well, why I give up so much today that I know that Mum and Dad aren't going to spend it because they've, you know, they save the pension and their house is with five meals. So there is a bit of that going on, right? Like, and there's just a lot of pressure on them in society to spend money. Like, it's just private school fees gone through the roof. Yeah, you're right. But for certain households, especially I guess middle Australia and up, the spending pressures are enormous, right? So we know that the CPI number can only do so much when you look at different people. Their spending is different. And you've nailed it. Our private schooling, and I've actually just been through that myself. So yes, fully aware of that, it is a burden, right? So this is a kind of a secondhand story, but I did hear that the CEO of a major bank, I think was it last year of the year before, said that when he goes around and kind of gets the vibe of borrowers and so forth and some of the key clients, he says that now

15:26in certain cities, Sydney being the obvious one, wealthy grandparents are actually stepping in to help support their kids with private schooling fees. No doubt about that. Actually, mortgage is as well because like, Dair, you know, I can't give you the cash now, but what I can do is pay your mortgage and they can see that the kids have, you know, because they've done so well out of property. They don't want the kids to move. They know that it's putting a lot of pressure in their family and, you know, to keep everything turning, particularly in the last four years. We've seen it that's been happening, not just cash, but regular sort of payments. Do you think though, like obviously as generation shift, what's comfortable for one generation might be comfortable for the next? Uncomfortable, no debt at retirement, comfortable for the Gen X or maybe a little bit uncomfortable. Do you think that the Gen Y are like, well, ultimately, I know I'm never going to live in that property in retirement. Why do I need to pay it off? Like, what's the point? Like, I'll just sell it and I'll find something else to live in.

16:27Do you think that's where we're heading to? Is that people being more and more comfortable with debt as generations go on because it's just such a big part of life, whereas I say the Gen X generation, as an example, what anti-deck is their parents drilled into them that debt was bad? And that's a huge change to the way that property works, I guess. I think you're right. I think millennials, there's a couple of parts to it, right? So they're even more educated than Gen X and, you know, and love to travel and so forth. But a lot of them, I think, are seeing property very differently. Some of them are just like locked out of the market and go, you look, we're forever enters or we're ren investors, right? So, literally, I have a niece who is that. She doesn't own her own property, but she owns an investment property, you know, 20-something in good honor and she's on the journey. But I think millennials are starting to see life a bit differently. And so maybe it is a case of yes, we're stuck. If we do get on the ownership train, whether as an investor or an owner or both, then we kind of have to deal with debt for life. This is the change in the conversation,

17:28right? So that's what we also looked at in the paper. It's like, all right, whether that is the case, are there smarter ways of dealing with housing debt than taking your money out of super? and giving it back to the bank, because it almost swaps one problem for another. So that's kind of what we were trying to unpack. There's no doubt that holding on to the more who super you can hold on to for longer the better, because once again, compounding, right? There's this thing called the 1036-year rule, which is that actually when they look at the long-term numbers, about 10% of the total benefit of super comes on the contributions you made, 30% comes from the earnings on those contributions before your attire, and about 60% comes from the earnings on the contributions after your attire. It's quite amazing the way the maths works, but you start with a sizable amount of super at the age of 60, and you can actually go the long distance if you manage it quite crudently, but if you take 200 out of 300 to pay off the bank, the maths just doesn't work anymore.

18:34So because there's lots of other knock-on effects out there, I mean, apart from the fact that you are robbing your ability for what you're about to compound into your retirement, you go and if you decide to go and sell that house in downsize, and you might actually pocket quite a bit of equity, and then you might be using the pension because you've eroded your super, then with all that extra equity, you might be in a situation where you're now you've got more cash, you're not going to get you're not going to get the pension again. So it's a bit of a game, I guess that people need to know the rules when they're playing this. Agreed. And interesting you mentioned downsizing, because we looked at that as a sort of a breakout section in our report. One, why art Australia is using downsizing more? And I think Veronica, you've hit the nail on the head for middle Australia, because basically they don't want to release so much equity that it impacts on their age pension, because it is so valuable. So actually who downsizing is working for right at the minute? And it's I think it's a Melbourne Sydney thing is the upper end of the market in the leafy eastern suburbs houses that they've owned for 30, 40 years. Too many bedrooms, kids don't need it anymore.

19:37Downsize it, go to a brand new purpose built, you know, multi dwelling, a beautiful apartment is something in the same locale, because a lot of people don't want to move too far. They want to be close to either their networks or their kids to the grandparent duties. Those people are, yeah, that they're in a good shape. They can sell that, you know, five, six better, release three, four, five mill by something in the one and a half, two and a half mill range. And then the difference, because they were never going to get pension anyway, it's just all upside. That's what we see in the data. It's great strategy, but for middle Australia who still have dead outstanding at their approach and retirement, it doesn't seem to be working out so well. So what could they be doing instead of rubbing their suit or eroding their super? So here's where we looked at this phenomenon, this thing called home equity release. And actually used to be a thing up until the GFC actually be surprised by some of the major banks were involved. They all wrote home equity release loans, right? I won't mention them, but some of the major names.

20:39But you're talking about reverse mortgages. A reverse mortgages primarily, exactly. There's a few variants and there's even a government version, believe it or not. But if you look at commercial reverse mortgages, that's exactly what it was that they used to be a thriving market. Then the GFC hit and they all had to pull out. But effectively, a reverse mortgage is just that you take a mortgage out over at a property, so it's just like having a normal mortgage, but you just don't pay any cash flows like zero cash flow. And the principle compounds with whatever rate of interest, variable fix or whatever your commercial arrangement is. And then generally speaking, when you get rid of the property, either you're selling it to go into residential aged care or your kids are dealing with your property, then you square up with the reverse mortgage provider then. And these days, there's a thing called the no-negative equity so you can basically never go into negative equity if for some strange reason interest rates and the property markets have moved against you. So yeah, reverse mortgages and variants they're off. Before we continue this conversation, I better make a declaration, actually, because I have

21:44a consulting role with Longview. And Longview have a product called Home Flex, which is not a reverse mortgage, but it is a product, if you want to call it that, and a lot of people in this sage bracket looking to that as an alternative. So I will just put my hand up to say, and I advise them in terms of the caliber of the properties that they might be bringing into the fund and might be sharing the equity of. So that's my role. I'm not a salesperson for fund. Thank you. And likewise, too, I should make note that the study we did last year was supported by a home equity release provider, a home safe solution. So yeah, they are a few, and thankfully they're coming back, because as I said, after the GFC, a lot of institutions just have to pull out of the market, because other things were on fire and they had to go back to core business. But now they're going hang on a sec. This is an issue. And so there are these innovative companies that are starting to realize that there are all the Australians who need help, and they're developing solutions to help, which is great. So there are these costs to this money. So you can't just tap into the equity

22:46in your home and then go, oh, that's cool. I just play it back when I'm ready to move, move out, or sell it or whatever. You're going to have to pay it and some. One of the things about reverse mortgages, because you, I love this, you know, you got this concept of no negative equity, basically, which sort of says that there's a risk. Previously, there's obviously a risk you could actually owe the bank more money than the properties worth when you go to sell, right? That's an enormous risk. And I know a lot of people, if you don't like debt, you're definitely if you're uncomfortable having that liability or that compounds, right? Because that's tied to interest rate, correct? There's an interest rate risk. Exactly right. It's because you're not paying down the debt as you would in the traditional amortize or principle and interest loan. It compounds, right? It accrues. But the issue is over the time that you're going to use that debt facility might the value of your home increase at a faster rate than the value of the debt. That's the bad. And no one can know because you don't know what your house is going to do in your suburb,

23:47relative to, you know, what Michelle Boerck is going to say on anyone, you know, RBA meeting day. So yeah, that's the thing, right? But overall, if you look historically, well, at least the last 26, 27 years since 99, 2000, yeah, the housing market has had a pretty good run. I'm going to personal mission to help more people make better, proper decisions. You know, most people don't realize that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need. And what I do is help people with tricky real estate problems, which offer masqueraders simple questions like should I sell my investment property because the interest repayments are hurting or should I buy before I sell or the other way around? You can connect with me and access all of the tools that I've created to help you make better property decisions at Veronica Morgan.com.au And there you will find resources for first-home buyers, details about my buyer's agent mentoring program. You can connect with my city-based property management and buyer's agency teams,

24:51Australia-wide vendor advocacy, or ask me for introduction to the small group of buyer agents that I would personally recommend across the country. That's Veronica Morgan.com.au. If you're considering a property move such as buying your first time, upgrading, renovating, or investing, the team here at Alcoe would love to help you think through your decision and get the finance right. Please go to Alcoe.com.au to reach out. Let's talk about reverse mortgage slash equity release, those sorts of things in a general sense. Why, if that's going to be expensive and you don't really know what the cost of it's going to be until you sell the property, right? So how could somebody I guess accurately or with any sense of confidence weigh up the difference between drawing down this super will they sort of get this sense of I at least I won't have a debt versus I'm actually going to have a different debt and it's going up over time along the way remain healthy. I've got this sort of this I've gone and done the right thing,

25:54I paid my house off, right? And now and all of a sudden then I back not having paid my house off, like how do people square that circle? Yeah, and that's a really, really difficult equation to do, right? The maths on that would be difficult even for actress because you're making massive assumptions about the rate of home growth, your particular house, your city, your state, whatever, relative to how your super fun might perform over that same period and then the ending. So what we did was we took a far simpler approach, which is just to say right here right now today, what's the cash flow benefit, right? So at the back of the study, we did a super simple case study where we looked at this hypothetical couple, John and and John's citizen, and we just said that their approach and retirement is still working, so there are Sydney couple, so they earn say 150 give or take. So he's working full time, she's working part time as they wind down towards retirement and they have the typical mortgage outstanding 230 there are thereabouts. And we ran some numbers and basically what we realized was that based on a

26:54home loan taken like say 10 years ago, they're total sort of household discretionary income, they would have gotten like maybe six grand a month give or take right because that was their income but their home loan is probably somewhere in the twos, 2300 a month, 2500 a month because don't forget it took it out a while back and the house was worth less. So they have like $3,000 each month to spend on other things besides the mortgage, right? So then we just ran two different scenarios, one which is take out the money from super and paid off and therefore have no debt and then off you go and that basically improved their situation by about 40 odd percent because they didn't have that 2000 something a month that began zero. So obviously every dollar that they could get in retirement from the age pension and the balance of their super they could keep and spend that was awesome. And then we looked at a different scenario which is well hang on to your super, use a facility such as the ones we've been talking about and use that to pay off the mortgage, right?

27:54And then that's super maintained, that's zero cash flow out the dollar and a monthly basis to the lender and that actually pumped up the take home cash flow what they could spend by almost 70% so they went 40% improvement by taking the super, sending it off and then but 70% improvement by keeping the super and just flipping the so it's basically just don't forget it's like a debt reengineering, changing one form of debt for another but what they felt on a day-to-day basis was many many more dollars in their pocket. So I think that's one we are thinking about it first level cash flow and then the second the second level which is probably what your kids will be more interested in is what's going to be left to them at the end of that. Immediately I'm thinking to myself if somebody has got themselves into a situation where they're into retirement with debt on their home because they've overspent they've lived beyond their means all the time

28:55leading up to that point if that's the reason that they've got themselves in that situation and then they're going to go and do that rather than tapping to their super to pay down their mortgage or continue to pay them mortgage out of whatever their earnings are at the time then they're just going to spend that extra 70% you know I mean they're not actually going to be better off they're just going to blow it. We had Brian Hart so on this pod back in 2021 and Brian Hart so basically got rid of all the reverse mortgages he set up a company called 2B which is now in Viva and he was calling about these all the way back then he's like look you know there's this is a product that we see huge growth in the banks have gone through all the responsible lending it's you know do you add deregulation and then when re-regulation with broad commission blah blah blah banks and our got issues with credit growth right so they can't keep growing there because it's just house prices and it's a big part of our economy right so they're going to have to look at innovation and I think that we're going to go full circle I thought that you know I reckon the banks will a it's a lot of misunderstandings around lending to

29:5755 60 65 70 year olds like there's a lot of people oh you can't borrow and you can't do this and like it's not true you can borrow on you know being retired you can borrow on your super company there's so many you can get 30 year loans at 65 like there's a lot of misunderstander banks wouldn't land and so I personally think that the banks are going to go full circle on this and lending to older Australians because there's so much debt available here and interest only terms are going to start coming back and potentially the banks are going to start moving into these reverse mortgages at decent rates because the risk to the banks very minimal like you know if I could offer you a let's say the loan houses were $3 million and there's a $500,000 debt on it why do I worry about them having to pay that off I know if they've got themselves into a position they could you know sell down and I think you'll find the these reverse and even the government have started offering a home equity release scheme which you can get access to it really

30:58sharp rates like 3.95% cheaper than mortgages and that I think's another sign so I think you know people are older people I know you're saying there's those downsizers that want to downsize but if they miss that window of uncomfortable to do it because I feel healthy and I feel like I can deal with change and I don't mind meeting new people and getting new neighbors if they get past that window they're desired or downsize like nose dives and they just want to stay in their home all the way through to death and then we're living longer and longer right so like one even if one party dies the surviving spouse could live it well into their 90s and so I guess my take away is that you know this debt is just going to be a part of what retirement is and I think there's going to be more and more solutions that come that force people not to have to downsize but they don't also don't have to take on product for the very high interest rates I feel like the competition in this market will ramp up because the exit strategies are can sell my home or I've got a bunch of money

31:58in super that I could always sell and so the banks like well yeah I'll lend you the money is that sort of your take on it too it's very likely that the big institutions will look at the space again and go you know what the numbers are mind bogging because when you look at the wealth in Australia at the household level it is 100% dominated by bricks and mortar and when I say bricks I mean some of the some of the numbers are actually quite comical when you look at it in abstract because for example I'll give you these stats which we had in our report in the year 2000 the total wealth of Australian households was 2.5 trillion of which housing was 1.6 trillion the most recent numbers the total net wealth effectively of households in Australia is 17.3 trillion so 17 trillion of which housing now has just car crossed over 12 trillion right 12 trillion dollars and you would know the median Sydney is what 1.4 busy Melbourne are all in the nines basically now and that's dwellings right so that's the combo

33:01of freestanding and so yes you're right would a bank stress about lending far for 500 000 to an older couple when they know that they're good for assets of you know 2 3 million so you're right and I think especially Gen X and millennials to come maybe we need to to reduce the constraint of what our parents thought us the baby boomers and the pre pre-war babies which is never ever approach retirement with any housing debt right because the fact of the matter is houses expensive now in Australia and incomes haven't kept up so as Ellen Kohler said to his parents about four times income house price to income about four times when he bought it his hers house here in Melbourne is about the same now a millennial in Sydney's looking at about 10 times I think and Melbourne is maybe eight or nine times income so with that it's really really hard to pay off over 30 40 years especially if you change houses on the regular basis every 10 years if you unfortunately experience

34:05relationship breakdown then both of you have to go stop yourselves out again or if you do a Renault or any of those three you know I know that 12 trillion of housing market of that 12 trillion I don't have the stats a vast majority is held by people over there just 65 right yep it's about I think it's about three three of the 12 that around about there probably but I don't know that feels low to me but I think that number is huge and there's always this belief that they're all going to down size and they're all just going to flood the market with all these properties and even these people who are in the 55 now and they're getting to retirement by the time in 10 years time they get to retirement they're back and if still got a four five hundred thousand dollar mortgage they might be able to get a 15 year interest only low and at you know a bank rates because like the crackdown in sort of the Royal Commission and coming out of that investment boom well sort of is sort of slowly getting unwind I feel you know like and I think if it's not the banks are with the non banks and the non banks will get good market share and then the banks will be like oh actually we'll just start offering that in house and and they're basically everyone's holding debt right so the

35:09the young person's holding debt and you don't get forced just to sell because you can't afford to hold debt I think there's a preference for most Australians to age in place anyway once again we saw that in our study like you know I can't remember the productivity commission or one of them did did a big study into reverse mortgages and older Australians and what they were doing it was pretty clear even back then like 10 years ago that Australians prefer to age in place because they're comfortable with their you know in the environment they have support networks they're built up in and around place and now with packages available you know home care packages and so forth it is possible right depending on the house and then a bit of record fitting here and there so yes definitely and then and then you've got this massive asset the problem with that is it doesn't generate you cash right so you've got this beautiful house which you know it's awesome in retirement and it's one and a half 2 million whatever that number is but it's not giving you any cash and then the problem is if you still have a cash outflow how do you manage that so here's where I think mortgage brokers another like mortgage advisors also have a role to play to educate their client base right

36:15and whether it's their clients or their client parents or working together as a team like what's the situation here what do you do what are your options you know okay so how does how does the state could reengineered to help out with net cash flow on a monthly basis all of those conversations I think will become more relevant and there will definitely be more inference to the market because that's just the way the screener's demographics are moving it's not incentivized for the kids to get their parents out right that's a there's multiple children often you know if mom or dad does move out then yes some cash is released but maybe they're not going to put it into a good asset you know maybe they're not going to get as much as they would get if they sold like the full property so there's an incentive you know just to get help their parents age in place rather than encouraging them to downsize right and because they go they're going to get a better inheritance one day as well like on top of I think that's best in their best personal interests as well yeah I mean if you work you're right you know you talked about intergenerational like

37:18arrangements and whatever but if you think about it as a family unit intergenerationaly yeah do the numbers but you may be right if the kids work together with mom and dad to keep them in their own house and then manage any debt and so forth it's kind of like you know you play the long game and maybe it helps you out and then it helps your kids out down the line I think I think basically the bottom line is we all realize that it's better to own a property in Australia than not own a property so as I said we work in the retirement space we know from the numbers in terms of income poverty in retirement fully home owning Australians it's like 11% it's hardly a thing you put a mortgage onto that so income but home earning Australians it doubles into the 20s and the people who are in real strife non home owning retirees and of all of those women are by far the most impacted because they have the least resources the least super because of the super gender gap and the number is an astonishing 78% of Australian single female retirees

38:27who rent in income poverty according to the gratin institute they did an awesome study last year so yeah if you're on a home then in Australia you then kind of becomes like a team sport I think these days working it the numbers with your kids working the numbers with your parents are knowing the options for debt management and thinking about it in that lens working with a good mortgage broker who understands the ins and outs I think that's just going to become more common we've seen it in New South Wales effect we've had guests on the podcast talking about the changes to zoning across Sydney for example we know that in Melbourne there's very similar things happening and across the country we're going to see more and more this particularly in urban areas you're going to see more and more supply of you know medium and high density living and I think it'll be interesting to see how that changes this conversation because apart from the fact you know the cynical adult children sort of thinking well I want to keep mum dad in the house because that's assuming the house is a great asset that is really valuable you know they're just living in normal suburbia

39:30they're not having those conversations they probably is not actually worth that much money to give them all those lovely options right so I would hazard middle Australia's not necessarily having those conversations but what they are having conversations are around you know I don't want to be about this house because that means I have to move a long way away to be able to downsize into you know an apartment or a townhouse or a villa or something and I'm losing all my connections I'm losing all my friends I'm losing the family I'm losing my doctor I'm losing the chemist I go to I'm losing all of these things that are familiar to me and with this sort of changing of the density changes that are happening in a lot of our suburbs these options will come up for people to downsize like you talked about the eastern suburbs type person who sells the big expensive home because they're self-funded and then now they're taking advantage of these developments to buy a really beautiful apartment in the same suburb or the next suburb that sort of thing is going to start rolling out across the board I would think that that's going to have an impact on the willingness of people to stay in place or whether or not they're going to actually

40:34downsize so there'll be quite interesting to see what impact that has on this emerging market of funding people into retirement good point and it's city by city I think right I mean I was just in Sydney recently just last week and and definitely sit Sydney is ahead of all other capital cities in urban infill and building some you know quality apartments and apartment blocks and people moving being more comfortable living in a multi dwelling environment Melbourne is behind Sydney but on the way and I grew up in Adelaide and everyone there lives in a like a detached house the concept of an apartment is like what and you see that on the numbers that's why actually weirdly Adelaide looks like it's overtaken Melbourne for median dwelling price but that's just because there are so few multi dwellings in Adelaide relative to Melbourne right so that's like a bit of a fudge in the numbers but yes I think more urban infill more quality and more options in that you know whatever 3 to 15 20 story apartment buildings and whatever would definitely help then

41:37people would go right I may now be prepared to step away from my detached home and live in something that keeps me connected but is you know sufficient quality and amenity that that I don't mind then making that decision so I think we'll see how it plays out in Sydney because I suspect all the people in Sydney will potentially have more choice before similar people in Melbourne breezy Adelaide and the other capital cities and they're not going to absolutely just if that I think there's this sort of growth which we haven't yet I think in data but a whole new style of development right like it's not a retiree home that's sort of boring it's sort of retiree living with you know that's actually much more targeted at the sort of the pre retiree to you know retiree you know it's a whole new type of property that's probably going to come as well right it's not just come here when you know it's your last option it's come here because you choose this is a better way of living out my next 10 20 years it's with a lot of people that are like

42:39minded that are still fit and healthy and it's in premium suburbs like so it's not aged care and I think that hasn't really been a market because those sort of people wanted to sustain their home and you know there's a lot of people still wanting their parents and staying at home because that is the place where people can all come to right like the kids don't have a house they've got a townhouse and the grandkids have got apartments and so the family home is often the meeting point as well and if that goes like it goes for the whole family and that's that's another thing that I think you know keeps the home off the market and stops the person you probably should downsize the downsize this is true right it's all of those things it's like a memories and it's like convenience and it's where everyone gathers at Christmas you know it's like yeah we're doing the road trip back to visit the folks in whatever city you know you grew up in and yeah you know you've got your old bedroom it's all of those things that that's true but you know from from the point of view of the parents or the retirees they've got to make pragmatic choices because what we do know is like the cost of living and retirement right insurances so rates

43:42a home in contents and all the other insurances that go with being a homeowner that's been going up far far higher than inflation over the last few years you just don't see it and so they have to make pragmatic calls and then heating and cooling right by heating and cooling a big all 70s house with multiple bedrooms with a with a good old-fashioned you know ducted heating unit like a good luck with that you know Melbourne or Adelaide and Sydney winter so yeah so it's all those things that that as I said this cash flow is becoming like really front and center so there's this asset which is awesome and if you can organize it yeah by all means stay in place age in place deal with any debt through some good advice or look at what's out there if you're in the suburb which gives you the ability to downsize staying at suburb it's a nice new flash thing and the kids can still have a room or whatever whoever's visiting awesome but yeah every Australian will have to make their own choice but I think the key thing is get some awareness and start thinking about it sooner rather than later right better think about it 55 than 65 better

44:46to think about it 65 than 70 and the last thing you want to do is is be having what you hear of as this terrible hospital car park conversations between siblings as something has happened and then mom and dad is like and then can't stay there anymore and blah blah blah so it's kind of like thinking through all the different issues about aging and housing and housing debt in the 21st century definitely is a changing landscape there's no debt about it we've had a couple of conversations recently around the legalities and some of the options in terms of multigenerational living but also the planning around that and the simple fact that you know so many people leave it too late to give themselves more options you know in terms of deciding whether they're going to downsize or move or whatever however they sort of plan their way through this it's the avoidance of planning often rather than active planning and sometimes even staying in the home is a way of avoiding making these decisions so it's not something that you know sometimes moving is a really smart thing

45:47to do and I look at my parent situation I look at a number of situations of people that we've dealt with over the years we do quite a lot of enter advisory for people that are moving into retirement living in its various guises and it is really interesting to see those who have less choice and more urgency versus those who are actually making much much more you know considered an active decisions and exciting decisions rather than those fearful decisions because this is really God's waiting room you know like getting in early is just so much more empowering and you've got so much more agency over your own life I've got a bunch of friends in fact I've got two different bunch of friends and we talk about our own sort of you know what village is a week and a build for ourselves you know we're going to do it as sell I'm sure I'm not alone in that are you part of one of those conversations too yeah strings are thinking outside the box right so I heard of this one case of finance executive who I think is Melbourne based and then you decide to pull up stamps and decided to build a purpose build dwelling like I think a southern some in Queensland or northern New South Wales somewhere on there you know where the sun is always shining and he did that specifically

46:51to accommodate him and his aging sister so I think they were both in the 60s and it was like that it was designed specifically for their needs and then they've organized you know their care someone to come in once a week and clean and so forth so Australians are picking differently if you've got the way with all and the and the finance to do that often awesome but the key thing is I think Veronica as you mentioned start thinking early right start making those plans because it's far better to make those plans from a position of optionality and confidence than as you said stress and panic because those decisions tend to be kind of like they don't work out as well when you're panicking and trying to get things sorted in very compressed time frames yeah it's not easy to make good decisions under that amount of pressure Harry have you got an example of a property dumbbell for us today a story that we can we can all learn from we love personal stories on this podcast as well if you got one I know a family and I won't mention any names but yeah now it's mine which which is literally that this case of

47:51of helping parents to age in place versus move right so we got to the point me in my siblings where we realized that my parents had to move and there was a conversation had with with an uncle who was also aging and it was my guy well do we find a piece of land and it's like two townhouses and do whole architectural bubble bath thing and and that was kind of all going really well until two things one covered and then two because of that the other party my my relative not being able to sell his property and then it all went pear shake and so we ended up doing kind of all the things we just talked about which is a very scatter gun approach to moving my parents closer to my my sibling so now they are in proximity to where they can get a lot of family assistance but it was rushed and it was kind of like backwards in and weirdly it ended up being in a kid you're not an accidental upside because obviously we we were looking for a big block of land and a house that we could potentially knock down so now it's all worked out really well but it just goes to show that you

48:54know the best laid plans of mice and men and a once in a hundred year endemic can definitely throw your plans about but you know you live and you learn and you adapt but that was definitely an interesting couple years through COVID. Harry it's been a good chat I do think this is one that I've sort of been thinking about a lot over last few years because I can see it and I think we've been doing partnerships with the device firms like financial vice firms and you know it was always like oh yeah my clients don't need a dead advice because a typical advice client is 55 to 60 that what we're talking about but it's that proactive sort of debt planning together with building a super portfolio because like this thing's not going to be paid off like you need to be coming out with a strategy and you know and paying out money out of the super fund to pay it off isn't going to be in anyone's interests including yours advisor because you're going to have less in their fund right. Yeah I think you're right Chris and this is the thing just to finish up I think there's this real demarcation kind of like issue right between super funds financial advisors and debt professionals who work in the credit space and it actually ends up

49:57being kind of like a worse outcome for the actual individual the member and we need to somehow work together to break down those barriers so that the advisor understands what the super trustee is trying to do the super trustee understands what the advisor is trying to do and both of them understand what the mortgage broker can bring to the equation for the betterment of their mutual client that's something we're really hot on and when I speak to super funds they're really struggling with that and they need to get on board because otherwise I can guarantee you a lot of super money but we will be walking out the door to banks when if everyone works together they can just kind of think about it a bit more intelligently and everyone but literally all four parties will be better off. I would add in there that you really need to be have good property strategy advice as well because the reality is that you know it holistic advice is always the best advice you know is there's knock-on effects for all these decisions certainly when I'm doing strategy sessions with people we are talking about the other advisors that they need at different times and don't make

51:00that decision without consulting with that advisor but you know the problem is a lot of people do everything they can to hold on to a crap asset you know so sometimes you do have to be thinking is it worth holding on to you know like you know I think that's going to be growing in value over time and it's therefore it's worth holding on to or should I get out of it now and actually look at other options and so without mind you there's not many people in the country I can honestly tell you that us able to advise on asset you know Calabar that's a unique set of schools and there's no rural university for it sadly because it takes critical thinking and a lot of experience to have really been looking at what does well over time what doesn't and why right so there's data but there's also just lots lots of anecdotal evidence there's what brought Chris really into the property space you know he started seeing that I mean Chris you tell that story many times about what you started seeing with clients you know why is it some people do really well in property and other people don't you know and it comes down to the asset selection as well as I guess what they do with it after

52:01they own it but you know a lot of the people that are trying desperately to hold on to properties and I feel a bit sad for them because I think to myself not sure you know it was me I don't think I want to give that one yeah look it's it's the biggest decision right because it dominates the household balance sheet and like buy a long way it's three to one for every dollar in in super most Aussies have three dollars in bricks and mortar so that decision pretty much will determine and I could you not will determine the sort of retirement you have it's that critical yeah thanks so much Harry I really appreciate the chart not a problem if you have a question that you'd like us to answer in an upcoming Q&A episode you can send us a voicemail or written question via the website the elephant in the room.com.au or you can email us directly at questions at the elephant in the room.com.au if you like what you're hearing please share this episode with others you feel would benefit and while you're at it why not leave us an iTunes review five stars would be great I know that sounds a bit cringey but we have it on good authority

53:05that every review helps make it easier for other people to find out about us and he would are amazing guests have to say