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The home ownership crisis is worse than official numbers suggest, according to analysis by independent economist Saul Eslake.

Not only are the young being locked out of the housing market by rising prices but older people with mortgages are heading to retirement still carrying significant loan debt.

“If current trends continue, a lot more people will retire with either mortgage debt or having to rely on privately rented housing,” says Eslake.

“An increasing proportion of new retirees will use some or all of their accumulated superannuation savings to discharge their outstanding mortgage debt.”

And this means that a higher proportion of retirees may then be wholly or partially dependent on the age pension than currently assumed.

Australia’s superannuation funds have grown to $2.2 trillion, according to the latest statistics, and are forecast to hit $4 trillion or more by 2015 and $10 trillion by 2040.

That’s an average of $76,000 per account. Self managed superannuation fund members have about $600,000 in their accounts.

Most calculations showing the amount needed in retirement assume that retirees will own their homes outright.

Without that home asset, retirees face poorer living standards and those still in the work force will face higher taxes to meet increased age pension costs.

This chart shows the overall decline in home ownership in Australia:

Eslake’s analysis is contained in a report, Housing Affordability and Retirement Incomes report, commissioned by the Australian Institute of Superannuation Trustees

These two charts show what’s happening, a decline in ownership and a rise in homes with a mortgage:

Source: Saul Eslake

According to Eslake’s numbers, the proportion of home owners who own their homes outright has declined more than the overall home ownership rate, from a peak of 61.7% at the 1996 Census to 47.9% in 2011 and to 46.7% in 2013-14.

Compared to 15 years ago when almost three out of five home owners owned their home outright, home owners with a mortgage are now in the majority.

Estlake says the decline in the home owners who have paid off their mortgage reflects the need to take out larger loans because of significant increases in home prices relative to incomes since the early 1990s.

Another factor is the increase in the maximum loan-to-valuation ratio at which lenders are willing to lend, from 80% in the 1980s to around 95% over the past decade.

This means that mortgages typically represent a larger proportion of home purchase prices.

Home owners have also been encouraged to use redraw facilities to finance the purchase of other goods and services, and investment properties, by extending the mortgages on their homes.

Eslake also points out that a fall in inflation and in interest rates since the early 1990s has meant that the real value of outstanding mortgage debt is reduced at a slower rate than in previous decades when inflation was higher.

Specific age groups, other than young first home buyers groups, have seen very large falls in home ownership.

Eslake says changes in the age structure of Australia’s population has obscured the fall in the overall home ownership rate.

Officially, the home ownership rate fell by only five percentage points between the 1991 and 2011 censuses.

But the story is different when looking at specific age groups. The home ownership rate among households headed by people aged 25-34 dropped by dropped by 9 percentage points, 35 to 44 year olds by 10 percentage points and 45 to 54 year olds dropped by 8 percentage points.

These charts show the steep fall in outright home ownership and the rise in mortgage debt among 55 to 64 year olds, those almost at retirement:

Source: Saul Eslake

And there’s another trend which will put more pressure on Australia’s funding of retirees — more people will hit the end of their working life still renting.

The proportion of households headed by people aged 45 to 54 living in rented accommodation rose by about one third to 25% from 18.4% between 1995-96 and 2013-14, according to and Australian Bureau of Statistics survey.

“It is likely that a higher proportion of retirees will be living in rented accommodation in future decades than has been the norm over the past five decades,” says Eslake.

These charts show the rise in renting in Australia:

Source: Saul Eslake

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