House rich, cash poor Aussies looking for equity under their own roof

Last year national housing values skyrocketed by 22.2 per cent, adding approximately $126,700 to the median value of an Australian home. Picture: Supplied

Many Australian homeowners have discovered that after an incredible once-in-a-generation property boom they are now house rich, but possibly cash poor.

Last year national housing values skyrocketed by 22.2 per cent, adding approximately $126,700 to the median value of an Australian home.

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And that’s money in the bank – well, sort of. While the increased value of your home means there is more equity under your roof, accessing that money isn’t exactly straightforward. Cashing in on that new-found wealth is becoming costlier according to Sarah Megginson, senior editor of money at Finder.

“Property prices have grown exponentially over the last 20 years. Back then the price points were so much lower. If you sold a property you were spending a much smaller percentage of it on real estate commission. Now, with the average dwelling price in many places, you’re looking at a $30,000 commission, which is a huge chunk. And it makes the calculations sometimes really unsustainable,” she said.

“If you want to downsize, it’s going to cost you a small fortune in real estate commission to get out of the property and then another small fortune in stamp duty to get into a new one. So downsizing can actually be a really expensive exercise.”

Holiday hotspot turned pandemic retreat of Byron Bay had a whopping 114 per cent value rise in two years, with a median change from $1.414m to $3.025m. Picture: Supplied

After running the numbers on a home worth $1 million, a vendor could spend between $30,000 and $40,000 on real estate agent commission, legal fees and additional selling expenses such as cleaning, repairs or styling.

“Then if you bought something smaller, say for around $600,000, you’d still be spending another $20,000 or more to get into it.

“So, straightaway you’re looking at least $50,000 just to move to a smaller home. When many people add it up, it just makes more sense to stay where they are.”

These barriers to downsizing, said Ms Megginson, are also contributing to the housing crisis as an increasing number of large homes are held by just one or two people.

Data from the ABS shows that approximately 79 per cent of households have one or more surplus bedrooms.

Miami on the Gold Coast in Queensland experienced a huge 93 per cent increase in the median house price from $767,500 to $1.48m in the two years to March 2022. This four-bedroom house recently sold for $1.3m. Picture: Supplied

“The government definitely needs to look at policies that would make it easier for downsizers. “So much time and energy is focused on first-home buyers and policies helping them get into the market, and that’s really important, but we neglect the other end.”

“We’ve got a national crisis – we need more housing. The government constantly puts out policies to try and stimulate new housing, but we’ve got all these empty bedrooms sitting across Australia. We just don’t make it very easy for people to downsize effectively.”

Despite the costly nature of downsizing in Australia today, Finder research showed that 1 in 8 Australians (or 12 per cent) are still looking to downscale their homes over the next year in the hope of accessing the stored wealth.

Sarah Megginson, senior editor of home loans at Finder.

In the study, nearly 5 per cent Australians said they wanted to downsize to less costly housing to unlock equity, just over 4 per cent of households were downsizing because they don’t need as much space as they used to, while the remaining 3 per cent of households wanted to downsize temporarily to allow them to save money.

“Fifteen to 20 years ago it was always the goal to get a house with a white picket fence in the backyard for the kids and a dog.

“These days we live in totally different ways and people don’t always covet that anymore, or at least not forever.

Ms Megginson explained that homeowners who were keen to tap into the wealth they have tied up in bricks and mortar should establish their motives for downsizing.

“If it’s because you want to unlock some equity then that’s really different to downsizing for lifestyle reasons.

“If your house has grown in value and you want to access funds then there may be other ways to achieve that instead of selling the property.

“You could keep it as an investment and use some of the equity as a deposit on a smaller more suitable property.

“That way you’re not spending all that money on selling fees, commissions and legal costs but you’re still growing your asset base.”

Another option is to rent out spare rooms in your home.

“That rental income can help with mortgage repayments if you’re not ready to downsize,” she said, but added that downsizing for a change of scene was another story.

“If you don’t want to look after the yard anymore, you want less bedrooms and a cosier lifestyle then the financial aspects of the transaction are a little less important.

“It really just comes down to crunching the numbers to find out exactly how it can work for you.”

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