Australia’s increasing cohort of lifelong renters is at risk of living in poverty in retirement, because the current system is ill-prepared to care for them, a new report warns.

If a retiree owns their own home, they’re in luck; the Grattan Institute report released on Tuesday shows they are likely to live comfortably into retirement, on the pension or with superannuation.

Academics consider Australia’s retirement system asset-based, and those without a family home at an inherent disadvantage.

Institute chief executive John Daley said the number of Australians renting for life was cause for concern.

“It’s clearly a problem. Home-ownership rates are falling very fast, particularly in those on lower incomes,” he said. “Our estimates are in that 35 years home-ownership rates among retirees will be about 57 per cent, and right now they’re 80 per cent for existing retirees.”

The Money in Retirement: More than Enough report showed most retirees were actually better off than they perceived, and were often saving money into their retirement. But, this was only if they owned their own home. Mr Daley said this highlighted concerns of falling home ownership.

“Those who own their own their own home will be likely to have a perfectly adequate standard of living,” he said. “Those who are on low incomes who rent, particularly in Sydney and Melbourne, their risk will be quite high.”

RMIT property school senior lecturer Andrea Sharam agreed the current trajectory was not ideal.

“The expectation [of the current system] is that you will own a house outright by retirement,” Dr Sharam said. Because the system was designed with this in mind, the pension was not enough to cover rent, she said.

“If you have a pension of $22,000 and have to pay $10,000 a year in rent, you are going to be in poverty.”

While the falling levels of home ownership seem difficult to tackle, Dr Sharam insisted the situation was still fixable.

“The situation we have is man-made, it’s the result of the policy settings we have, so we should change them,” she said. “All the policies that are aimed at inflating the market should be flipped. We should stop rewarding investors in the way we do.”

Mr Daley agreed making housing affordable for all income earners again would alleviate the problem. “The reason people can’t buy homes is because they can’t afford it,” he said.

He said another way to help prevent retirees from falling into poverty was to increase rent assistance, which could be funded by eliminating Labor’s increase of the superannuation guarantee from 9.5 per cent to 12 per cent.

“[The report] implies that people may not need to save quite as much for their retirement as they thought and in particular there’s very little reason for the superannuation guarantee to go to 12 per cent, which would cost the budget $2 billion.

“We could increase rent assistant to everyone, not just for pensioners and if we didn’t increase the super guarantee and still have money left over.”

This story has been updated to correct the pension figure to $22,000.