Exclusive launch: the Household Capital Index for Home Equity Retirement Funding

22 January 2020: – Household Capital has launched a new Australia-wide property index – the Household Capital Index. For too long, property indicators have focused on historical data and the short term outlook – how good is your home to flip or downsize next year? The Household Capital Index provides homeowners with a different view: how good is your home to provide long-term retirement funding?

“Australian retirees are living longer than ever. Most baby boomers don’t have enough superannuation to trust that it will get them through,” said Josh Funder, CEO of Household Capital.

“The Household Capital Index helps Australian homeowners have confidence in drawing on their own home equity to provide long-term retirement funding. Overall, the analysis shows that over 98% of the sample postcodes have consistently delivered positive home equity to support retirement funding over the past 40 years – most retired Australians can rely on the home equity they saved.”

The Household Capital Index ranks postcodes and suburbs across Australia according to how likely the current value of home equity can provide long term retirement funding. All postcodes above 50 are high quality home equity areas where there is strong confidence in the long term outlook.

How will this help Australian retirees? A higher relative Household Capital Index score means that homeowners can expect to have a greater part of their home equity available to them to draw on over the course of their retirement. A higher Household Capital Index score doesn’t change how much home equity is available at any given age, but it does help people to draw responsibly on their home equity now and in the future to self-fund their retirement.

“We’ve modelled historical home equity performance across Australia and added a range of forward looking factors which are specific to long-term home equity retirement funding,” said Funder.

Some of the key factors taken into consideration are:

• Historical performance: 40 year nationwide performance of suburb-specific home equity performance
• Negative equity risk: statistical analysis of the intersection of property prices with interest rates including historical property slumps
• Macro factors: immigration, urban planning, economic trends
• Localised retirement housing market outlook: sub-postcode supply, demand and volatility for retirement housing
• Transacted and untransacted property: includes housing which is not going to be sold or downsized
• Economic drivers: local employment and wealth parameters
• Housing stock: long term patterns of property mix including apartments and houses

The Household Capital Index integrates data from a wide variety of sources including CoreLogic, Australian Bureau of Statistics, Reserve Bank of Australia, National Seniors, major superannuation funds, and Household Capital.

“There is no average baby boomer and each home is unique,” said Funder.

“Australian retirees are making their own plans to live well at home over the longer-term. Each household should understand their own needs and plans. Australians can have confidence in their own home equity retirement funding.”

Highlights

• Forrest ACT: high incomes, stable federal employment make home equity in Forrest the leading suburb in this sample
• Kew & Red Hill: a couple who have a family home in Kew and a holiday home in Red Hill could have greater confidence in their home equity retirement funding than a couple with a home in Toorak and holiday home in Portsea (below)
• Diverse suburbs: from prestige harborside Rose Bay or inner city Paddington to Pennant Hills and north coast Tweed Heads, home equity provides a strong foundation for retirement funding. In Victoria, outer suburban Box Hill, Springvale and Epping provide a positive longterm home equity outlook.
• Seaside Sandringham VIC is at least a good a place to retire using home equity retirement funding as bayside Albert Park VIC
• Frankston, Mildura and the Mornington Peninsula in Victoria have similar profiles for the purposes of long-term home equity draw down.
• Toorak & Portsea: while a couple owning a home in Toorak and a holiday house in Portsea might have greater total home equity than the couple in Kew/Red Hill, higher top-end volatility in Toorak and Portsea makes home equity in those suburbs less stable in the longer term, suggesting a slightly more conservative approach to retirement funding.
• Karatha, WA, is well below 50 on the Household Capital Index. A fly-in, fly-out workforce, volatile employment market, few retirees and remote location make Karatha a less reliable area to use home equity retirement funding.