Call to make reverse mortgages compulsory for wealthier retirees

Australians with wealth over a given threshold should be required to make a contribution to their aged care costs by taking out a loan against their property, according to a report on policy options for the treatment of equity trapped in older people's homes.

Think tank Per Capita has recommended that wealthier Australians should contribute more to their own care through the use of home equity.

However, the report, 'The Head, The Heart and The House', argues that there are a number of reasons why old people prefer to stay in the family home and the solution to unlocking home equity cannot be just a financial one.

It cites several surveys into what stops people aged over 65 from downsizing. The biggest factor is the effort required. Another factor is the financial impact of moving - the impact on the age pension and costs such as stamp duty.

Another important factor is the lack of suitable housing options for retirees, especially those with disabilities.

And people participating in a Council on the Ageing focus group said they stayed put because they had strong attachments to home, garden, local networks and community.

"The starting point of this paper is to let go of the idea that rational policies and financial incentives are the only way to influence older people about where and how to live. This approach has not worked," the paper said.

"In a rational policy nirvana, older people might all downsize and free up housing for younger generations. However, the reality is that many people will choose to age in their current homes for a variety of reasons."

Per Capita has called on policymakers to use housing bonds to develop affordable rental stock, designed using the Liveable Housing Design Guidelines.

It also recommends a government reimbursement scheme for home retrofits.

And it argues that the Pension Loans Scheme, a public reverse mortgage scheme, should be made compulsory for wealthier retirees.

"Australia has struggled to anticipate and respond to the financial and emotional impediments that inhibit people from downsizing or shifting to more desirable and appropriate housing as lifestyles and needs change," the report said.