What is my home worth?

What your home is worth depends on who you ask…

According to the Real Estate Institute of Australia, the median house price in Sydney is $929,842. At the other end of the scale, Hobart’s median house price is $382,500. The median price across the whole nation is $658,608.

If you are about to enter residential aged care, your home is currently valued at a fixed $157,987.20 for the purposes of calculating aged care fees. This has no bearing on the actual value of your home, and is substantially less than the median home price.

If you want to take a slightly more obscure view of the valuation, then under the Social Security legislation, your home’s value could be seen as being $149,000. This the current difference between the assets test limits for a homeowner and a non-homeowner.

I would suggest that the most accurate and realistic measure of the value of your home is the amount someone is prepared to pay for it, on the day they are prepared to buy it.

So why am I asking the question?

For most people, either already retired, or approaching retirement, the value of your home has become a much talked about topic in the media. Especially when discussed in light of our ageing population, age pension entitlements, aged care costs and the increasing government debt.

The Productivity Commission recently published a new report; “Housing Options for Older Australians”. The report raised a number of interesting issues surrounding the valuation of a person’s home, especially when it comes to assessing age pension entitlements and aged care fees.

The report suggests, as part on an overall evaluation of age pension policies, capping the maximum value of a person’s home that would be excluded from the pension’s assets test. For example, limiting the assets test free amount of a person’s home to $440,000 (based on the 2010 median price home). If such a policy were ever to be introduced, this would mean that where a home is worth more than a pre-determined threshold, the value in excess of the threshold would be included as an asset for assets test purposes.

But, please do not panic just yet! This is not something that the government has accepted as a fait accompli and there will no doubt be a lot of soul searching and lobbying if such a change were to be proposed. Having said that, there was a time in the past, when a person’s home was included in the income and assets test to ascertain their age pension entitlement. But we would have to go back to 1909!

The concept of means testing the family home is not new:

“Where the value of the property of a single pensioner included their residence and exceeded 100 pounds, pension was reduced by one pound for every ten pounds of value in excess of 100 pounds. Where the property did not include their residence or that residence produced income, pension was reduced by one pound for every ten pounds of value in excess of 50 pounds. The pensions of members of couples were reduced in the same way but the amounts above which pension was reduced were halved to 50 pounds and 25 pounds respectively.”[1]

And we think today’s income and asset test is convoluted!

By the way, back in 1909, the full age pension was just £26 ($52) per year.

In 1912, just three years later, the legislation was amended to exempt a person’s home from the means test. Since that time the primary residence has become sacrosanct.

So a home can have many different values depending on the purpose of the valuation, and who you talk to. When it comes to considering changes in the future, governments need to be reminded that if a person has lived half their life in the same home, raised their children and experienced a lifetime of many unforgettable moments there, the home’s value is immeasurable.

To quote Dale Kerrigan from The Castle:

“The house is more than just a structure of bricks and mortar, but a home built with love and shared memories”

The difficult question governments will face is how do they unlock the untapped value in a person’s home to help fund retirement income policy, without creating a tsunami of angry future retirees, who may see this as a threat to maintaining a roof over their heads?

The debate is only just beginning.

The Realise Your Dream blogs are written by Peter Kelly and Mark Teale. More information about the authors can be found here