Speculation the Federal Government is considering tax breaks designed to make downsizing more attractive to older homeowners has been welcomed by property lobby groups.

According to the Real Estate Institute of New South Wales (REINSW) and the Property Council of Australia (PCA), tax incentives to encourage downsizing would have a positive impact on both the nation’s housing supply and pension system.

Federal Treasurer Scott Morrison is set to discuss ideas such as making retirees exempt from paying stamp duty when moving to a smaller home at a meeting with his state and territory counterparts in December.

REINSW president Malcolm Gunning said theidea had the support of his organisation.

“We believe in supporting older Australians on the purchase of a smaller house on the basis that it frees up large homes that are being under-utilised,” Gunning said.

“As part of our Real Tax Policy we recognise that NSW should broaden the senior citizens transfer stamp duty exemption by lowering the minimum age to 55 years and removing the ‘new home’ restriction and the purchase price cap,” he said.

“Many large houses are occupied by empty nesters. There should be incentives to encourage them to sell and buy more appropriate housing. This measure should also increase supply of larger homes in established suburbs, improve affordability and stimulate better use of existing infrastructure.”

While the REINSW supports the idea, The Property Council of Australia wants to ensure the plan would also apply to the elderly who wish to move to a retirement village.

“It’s encouraging to see these ideas are on the table but we urge the government to ensure the choice of moving to a retirement village is respected in the reforms being considered,” PCA retirement living executive director retirement living, Mary Wood said.

“Older Australians need access to all retirement living options, and the penalty on downsizing should be removed for all pensioners,” Wood said.

The PCA has also called for changes to means testing process for pensioners, which it claims is another barrier to downsizers. 

The PCA believes there should be an adjustment to the age pension means test, exempting up to $200,000 of home sale proceeds for full pensioners aged 75 and over on the condition they move to a smaller premises with 12 months. 

"Targeted reforms to the aged pension means test to remove the current disincentive to downsize is good public policy that will benefit seniors as well as making the pension system fairer and more sustainable," Wood said. 

"Our proposal avoids inequity and any distortions to the housing choices available to pensioners. It is simple to implement and administer and has been independently costed."