The Productivity Commission is pushing once more for the Australian government to promote an equity release scheme to help fund the costs of aged care services.
The commission first floated the idea two years ago. It has now made it a central proposal in a new
report on the economic issues raised by the country's population ageing.
Were the government to adopt the policy it could lead to a public sector competitor in a promising product niche already being tackled by the banks, while also providing an opportunity to stimulate the market.
The proposal calls for "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", with the emphasis on "growth" in equity.
The commission proposes a government-backed line of credit secured against the person's principal residence.
"Having individuals contribute even half the annual real increase in their home's value towards aged care services could reduce government expenditures by around 30 per cent," the commission said.
"An equity release scheme of this kind would still leave older households with an appreciating asset base and provide a means to increase the quality of services provided over the longer term."
More than 80 per cent of people in older households own their home, overwhelmingly without any mortgage, the commission said.
It said that "evidence on bequests over the past ten years, which most commonly relate to the family home, suggests this trend is continuing."
On the other hand, the commission cited a survey by KELLYresearch which found that property loans and credit card debt has increased markedly for people aged 50 to 64 years over the last decade.
The existing market for equity release is small.
In a study commissioned by the Senior Australians Equity Release Association of
Lenders, Deloitte found the equity release market in Australia had risen 11 per cent, from A$3 billion to $3.3 billion. A significant portion of this increase ($200 million) was due to compounding interest, not new business.
The number of outstanding loans rose two per cent, from S41,600 to S42,410.
The Australian government is already a provider in the market through the pension loans scheme, which is administered by Centrelink. This allows those people of age (or their partners) whose income or assets mean they are not eligible for a pension, or people who receive only a part pension, to access capital tied up in their real estate assets.
Two state governments and some local councils also operate municipal rate deferment schemes linked to housing equity.