The generational wealth gap and how property has contributed to the conundrum

While soaring property prices contribute to the rapidly growing wealth of older Australians, Millennials remain hopeful of one day owning a house.

Latest Australian Bureau of Statistics (ABS) figures indicate that the wealth gap between older Australians and the younger generation is widening and the high price of property is a major contributing factor.

In 2015–2016 when compared to the same group 12 years ago, households headed by those aged:

  • 64 to 74 years of age are on average $480,000 wealthier
  • 45 to 54-year-olds are $400,000 richer
  • 35 to 44-year-olds are on average only $120,000 wealthier
  • 25 to 34-year-olds were on average just $40,000 better off.

And it’s no surprise that the key factor for these differences in wealth is property. Since 2002, housing ownership has plummeted for people under the age of 40 as the economic disparity between those who own homes and those who don’t continue to increase.

If we look at comparison figures based on Census data, in 1981, 61 percent of those aged 25–34 owned their own home and in 2011, this figure had dropped to 47 percent.

In 2012, 31 percent of adults aged under 39 living in Sydney owned a home; by 2014 it was just 20 percent. In Melbourne, homeownership rates for those under 40 have fallen from 36 percent in 2002 to just 21 percent in 2012.

The ABS confirms that house prices grew by 37 percent on average across all the capital cities between 2003–04 and 2015–16 (and by more than 50 percent in Melbourne alone).

The higher property prices and decades of government policies including free university education and favourable tax concessions such as negative gearing have helped baby boomers accumulate wealth.

For households headed by someone aged 75 or over, greater property wealth contributed a significant three-quarters of the increase in their total net wealth. For those aged 55 to 74, property contributed about half of the total increase in wealth.

Will the younger generation ever be able to own a home?

While they may be referred to as ‘Generation Renters’, it seems that the vast majority (86 percent) of Gen Y households living in the private rental sector or with their parents aspire to own a home, although not necessarily in the short term.

The Bankwest Curtin Economics Centre Housing Affordability Report found that 30 percent believed they would be able to buy a home in the next two to five years. One-quarter believed home ownership was five to 10 years away. Only 6 percent did not believe they would ever be able to buy a home.

The silver lining for Millennials is the possibility of financial assistance from the ‘bank of mum and dad’ as well as an eventual inheritance.

According to an article in Domain, nearly a third of home buyers’ hopes of nabbing a property hinge on getting financial help from their parents, with most NSW buyers relying on close to $90,000 in aid from their parents.

The increasingly generous parental assistance has turned the ‘bank of mum and dad’ into the nation’s fifth-largest lender behind the big four banks.

With home ownership becoming increasingly tricky, the general consensus is that taking advantage of stamp duty discounts and the First Home Super Saver Scheme (FSSH) and buying property as soon as you can is the way to go for a more secure future.

No matter your age or circumstances by buying property you are investing in a tax-free asset that in the long term will increase in value.

Cohen Handler Buyer’s Agents can assist first home buyers with sourcing property that is within their price range in preferred areas. We can also recommend areas that currently offer good investment opportunities across Sydney. Contact us now.

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