How Government Have Widened The Gap Between Generations In Home Ownership

Various government policies have fuelled the demand for housing over time, expanding the wealth of older home owners and pushing it further and further beyond the reach of young would-be home buyers. A new study highlights this divide between millennials and their boomer parents.

The study is part of a Committee of Economic Development of Australia (CEDA) report called Housing Australia. It compares trends in property ownership across age groups over a period of three decades.

Between 1982 and 2013, the share of home owners among 25-34 year olds shrunk the most, by more than 20%. On the other hand, the share of home owners among those aged 65+ years has risen slightly.

The rate of renting has spiralled among young people. By 2013, renting had outstripped home ownership among 25-34 year olds.

Same policies, different impacts on generations

There is undoubtedly a growing intergenerational divide in access to the housing market. The timing of policy reforms has been a major driver of this widening housing wealth gap.

Negative gearing has long advantaged property investors, potentially crowding out aspiring first home buyers. While negative gearing was briefly quarantined in 1985, this was repealed after just two years.

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The appeal of negative gearing grew as financial deregulation spread rapidly during the 70s and 80s. This deregulation widened access to mortgage finance, but also pushed real property prices to ever higher levels.

In 1999, the Ralph review paved the way for the reform of capital gains tax on investment properties. Instead of taxing real capital gains at investors’ marginal income tax rates, only 50% of capital gains were taxed from 1999 onwards, albeit at nominal values.

The move, designed to promote investment activity, actually aggravated housing market volatility. The confluence of negative gearing benefits and the capital gains tax discount encouraged investors to go into more debt to finance buying property, taxed at discounted rates. The First Home Owners Grant, introduced in 2000, was another lever that increased demand. In the face of land supply constraints, these sorts of subsidies were likely to result in rising house prices.

Other policy reforms, while not directly housing related, have also affected young people’s opportunities to accumulate wealth.

The Higher Education Contribution Scheme (HECS) was introduced in 1989, at a time when many Gen-X’s were entering tertiary education. This ended access to the free education that their boomer parents enjoyed.

HECS parameters were tightened over time. And in 1997, HECS contribution rates rose for new students and repayment thresholds were reduced.

Of course, the 1992 introduction of the superannuation guarantee would have boosted Gen X’s retirement savings relative to boomers. However, these savings are not accessible till the compulsory preservation age, so can’t be used now to buy a house.

All these policies have clearly had varying generational impacts, adversely affecting home purchase opportunities for younger generations while delivering significant wealth expansion to older home owners.

An intergenerational housing policy lens

A new housing landscape has emerged in recent years. It is marked by precarious home ownership and long-term renting for young people.

It’s also dominated by a growing wealth chasm – not just between the young and old – but also between young people who have access to wealth transfers from affluent parents and those who do not.

The majority of housing related policies do not consider issues of equity across generations. There are currently very few examples of potential housing reforms that can benefit multiple generations.

However, there is one policy that could – the abolition of stamp duties. It would remove a significant barrier to downsizing by seniors.

The equity released from downsizing would boost retirement incomes for seniors, while freeing up more housing space for young growing families. Negative impacts on revenue flowing to government could be mitigated by a simultaneous implementation of a broad based land tax. This would in turn push down house prices.

As life expectancies increase, the need for governments to take into account policy impact on different generations is critical. On the other hand, policies that take a short-term view will only worsen intergenerational tensions and entrench property ownership as a marker of distinction between the “haves” and “have nots” in Australia.

Author: Rachel Ong Deputy Director, Bankwest Curtin Economics Centre, Curtin University

  

Further reading:

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Home Ownership Falling, Debt Rising – Its Looking Grim For The Under 40s

Home ownership among young people is declining, as mortgage debt almost doubles for the same age group, results from the Household Income and Labour Dynamics in Australia (HILDA) survey show. It also shows young people are living with their parents longer.

The Melbourne Institute of Applied Economic and Social Research undertakes the survey every year. It’s Australia’s only nationally representative household longitudinal study, and has followed the same individuals and households since 2001.

The survey shows the rate of home ownership among 18 to 39 year olds declined from 36% in 2002 to 25% in 2014. In the same age group, the decline in home ownership has been largest for families with dependent children, falling from 56% to 39%.

Chart: Household Income and Labour Dynamics in Australia (HILDA) survey 2002 Source: HILDA

Even for those in this group who manage to buy a home, mortgage debt has risen dramatically. In 2002, 89% of home owners in this age range had mortgage debt. By 2014 this had risen to 94%.

Chart: Household Income and Labour Dynamics in Australia (HILDA) survey 2014 Source: HILDA

More significantly, the average home debt rose considerably. Expressed in December 2015 prices, average home debt grew from about A$169,000 in 2002 to about A$337,000 in 2014. Low interest rates since the global financial crisis have meant mortgage repayments for these home owners have remained manageable, but this group is very vulnerable to rate rises.

Chart: Home loan repayments – percentage ahead Source: HILDA

Detailed wealth data in the survey, collected every four years since 2002, show this increase in debt and decrease in ownership are part of a trend in the wider population. HILDA shows 65% of households were in owner-occupied dwellings in 2015, down from 69% in 2001.

Chart: Home loan repayments – percentage behind Source: HILDA

In fact, the decline in home ownership has been greater than the decline in owner-occupied households. This is largely because adult children are living with their parents for longer.

For example, the HILDA data show that the proportion of women aged 22 to 25 living with their parents rose from 28% in 2001 to 48% in 2015. For men this proportion rose from 42% to 60%.

Among those who manage to access the housing market, the data shows that the growth in home debt is not simply because they are borrowing more to purchase their home. A surprisingly high proportion of young home owners (between 30% and 40%) actually increase their debt from one year to the next, despite most of them remaining in the same home. Even over a four-year period – for example, from 2010 to 2014 – at least 40% of young home owners with a mortgage increase their nominal home debt.

Chart: From the Household Income and Labour Dynamics in Australia (HILDA) survey

The proportion of people with home debt that exceeds the value of their home – that is, negative equity – has also risen. In 2002, 2.4% of people had negative equity in their home; in 2014, 3.9% had negative equity. This is a relatively small proportion, but this could change as even small decreases in house prices will result in substantial increases in the prevalence of negative equity.

Home owners – How this changes with location, income and profession

In 2014, less than 20% of Sydneysiders aged 18 to 39 were home owners, compared with 36% or more in the ACT, urban Northern Territory and non-urban regions of Australia. To a significant extent this reflects differences across regions in house prices.

Sydney and Melbourne have particularly high house prices, while non-urban areas generally have comparatively low house prices. Regional differences in the incomes of 18 to 39 year olds also play a role.

Those with the highest home-ownership rates are professionals and, to a lesser extent, managers. They experienced relatively little decline in home ownership.

For workers in other occupations, home ownership has declined substantially. In 2014 home ownership was especially rare among community and personal services workers, sales workers and labourers.

This decline represents profound social change among this age group, where renting is increasingly becoming the dominant form of housing. In 2002, 61% of people aged 35 to 39 were home owners – a clear majority of their age group. By 2014, this proportion had fallen to 48%.

The changing housing situation of young adults is part of a broader change in the distribution of wealth in Australia. The HILDA Survey shows that differences in average wealth by age have grown since 2002. For example, in 2002, median net wealth of those aged 65 and over was 2.8 times that of people aged 25 to 34. In 2014, this ratio had increased to 4.5.

Chart: From the Household Income and Labour Dynamics in Australia (HILDA) survey

The decline in home ownership among young adults and this broader trend in wealth have implications for their long-term economic wellbeing and indeed for the retirement income system.

Even if house price growth moderates and many of those currently aged under 40 ultimately enter the housing market, it’s likely that a rising proportion will not have paid off the mortgage by the time they retire. It may be that many will resort to drawing on superannuation balances to repay home loans, in turn increasing demands on the Age Pension.

Author: Roger Wilkins, Professional Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne INstructure of Applied Economic and Social Research, University of Melbourne

Further reading:

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Why Apartment Dwellers Need Indoor Plants

Image: Girl leaning on open window drawing outdoor greenery to the indoors
Photo: Fickr Alexandra-Cohen

Apartment – The number of Australians living in high-rise apartments doubled between 1991 and 2011and that trend has continued since then. The quarter-acre dream is fast disappearing and larger blocks and family gardens along with it. As more people move from country areas to the city and as land to build homes near the city centre becomes scarce, we’re getting further and further away from nature. It turns out this isn’t great for our health.

The change in urban environments because of development, associated with a rapid increase in chronic disease, is a global phenomenon in developed countries. In the past children grew up running on bare soil and grass, explored backyard farms and gardens, climbed trees and were exposed to a high level of bacteria. And the diversity of the bacteria can change if an individual is exposed to different environmental conditions.

One of these conditions is living in a high-rise apartment far away from land, soil, trees and plants. Being close to nature is linked to positive mental well-being – and people living in urban areas have been shown to have a disadvantage in processing stress. This can be at least partially attributed to increased exposure to air pollution and heat stress, and decrease in exercise and fitness through lack of access to a garden or nearby park.

The less exposure to nature we have, the less diverse the bacteria in our microbiota. The microbiota is the community of bacteria, fungi and viruses that live in our gut and on our skin. We need a diverse exposure for our body to fight inflammation effectively.

Alteration in the human bacterial communities, including the disappearance of ancient microbiotic species, is thought to cause inflammation in the body. These ancient species were known to encourage development of cells that regulate the immune system (T-cells). When our immune system stays on high alert all the time, instead of resting when no threats are present, this causes inflammation, which can lead to chronic disease.

Where plants come in

The bacteria we have are similar to those of plants in that we both carry trillions of good and bad bacteria. The diversity of the microbiota is measured by how many families of bacteria are present. We know the diverse plant microbiome influences plant growth, and humans benefit by eating plant foods. An important research question remains: do we gain another benefit simply by having contact with plants?

Plants also remove volatile compounds from the air including ozone and carbon dioxide. They turn the carbon dioxide into oxygen, meaning air quality is drastically improved. Higher oxygen levels inside a small apartment mean well-being may be improved for the occupants. Viewing plants reduces stress and is pleasing to the human eye.

Nature therapy (shinrin-yoku), first invented in Japan, has proven beneficial for our health by lowering blood pressure and boosting mental health. This is done by simply going for a mindful walk in the forest.

It has also been established that plants confer positive changes in the brain’s electrical activity, muscle tension and heart activity.

Some plants that are beneficial in the home

Peace Lily: if this plant is placed in the hallway it will reduce many toxins such as benzene, ammonia, acetone and ethyl and will prevent toxins from spreading between rooms in the apartment.

Image: Peaceful Lilly Photo: Peace Lily. H is for Hom/Flickr, CC BY

Aloe vera and Mother-in-Law’s Tongue: these plants placed in the bedroom emit oxygen, which improves sleep quality.

Image: Mother-in-laws tongue Photo: Mark Solarski/Unsplash, CC BY

Gerbera Daisy: if placed in the laundry these plants remove formaldehyde and benzene from the air, which are in common household detergents.

Image: Gerbera daisies. Photo: Marcia O’Connor/Flickr, CC BY

Devil’s Ivy (Golden Pothos): this plant can be placed in low light and cool temperatures such as an air-conditioned office or an outdoor garage. It will remove ozone, which is found in car exhaust fumes.

Image: Devil’s Ivy. Photo: DianesDigitals/Flickr, CC BY

How about plants outside apartment buildings?

Outdoor plants such as trees and shrubs help to shade our buildings and streets, cooling our concrete jungles. They also help with water runoff, preventing flooding and nutrient dispersal. Suburbs with more canopy cover have a perceived higher quality of living and attract better property prices.

Outdoor plants and soil have an abundance of ecological communities compared to indoor environments, a higher diversity of microbes, and therefore increase the numbers of insects, birds and other fauna. Viewing and being among large parks and green areas has been shown to improve the mental and physical well-being of people living in urban areas.

With backyards becoming increasingly rare, diversity is decreasing in urban areas. In response, the City of Toronto has written into local law that all new buildings must have green roofs that include vegetation, drainage, waterproofing and slope stability. The reasoning for the law was that green roofs provide:

energy savings from better solar reflectivity, evapotranspiration and insulation, green roofs last up to twice as long as regular roofs, and green roofs can beautify and add value to Toronto’s buildings by providing scenic views and recreational areas in dense urban areas.

A similarly bold strategy here would benefit not only the health of our apartment dwellers, but also the environment.

Author:  Danica-Lea Larcombe PhD Candidate in Biodiversity and Human Health, Edith Cowan University from

Further reading:

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Guide to selling a luxury home

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You’re fired! The best summer. Bugger – Go Digital. Join TREN. It’s Free. Explore more..
Click on image above to Join TREN

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Recipe Favourites - Banana and Date Cake

Image: Freshly baked Banana and Date Cake

My favourite cake recipe

Recipe - If you are looking for a sweet thing to eat that is homemade but don't have a lot of time well here it is - Banana and Date Cake. This sugar-free cake is yum yum yum!

Having made this on the weekend and of course had to do the taste test before sharing with you I can say this is a most delicious dish that is quick to prepare and just as easy to consume.

The best thing is that the ingredients are likely to be what you already have in the pantry rather than having to do a special shop at the supermarket and buy more than you went in there for.

This recipe has been written for Thermomix owners however it is so easy that it can be converted to be done with a food processor. Instructions for the food processor in brackets.

Ingredients

• 130g pitted dates
• 2 eggs
• 120g unsalted butter
• 190g self-raising flour
• 2 large overripe bananas (or 3 small ones)
• 1/4 tsp baking soda
• 50g milk
• 2 tsp vanilla essence

Method

• Heat over to 160 degrees
• Wet baking paper and crush into a ball and line the loaf tin
• Make sure your Thermomix bowl is dry and clean (food processor bowl) when you pour in the dates. Blitz dates 10 seconds, speed 10 (10 seconds, highest speed until finely chopped)
• Throw everything else in the bowl according to the above measurements.
• Mix 25 seconds, speed 5 (mix until blended well)
• Scrape down whatever is on the sides
• Final mix 5-10 seconds, speed 5 (mix for 5-10 seconds)
• Pour everything into the lined loaf tin
• Place in the pre heated oven for 60 mins. Test with a skewer in the middle of the loaf and if no mixture is stuck to it then ready to pull out of the oven.
• Allow to sit and cool for 10mins in the cake tin. Then pull out and remove baking paper and allow to cool on wire rack.

Options

• Drizzle caramel sauce over the cake
• Spread butter icing over the top
• Before baking add walnuts to the top of the cake. Set into the cake mixture
• Deliciously served with a scoop of vanilla ice-cream.

Enjoy.

How to stay up-to-date

Further reading:

Guide to 22 knockout marketing tips to sell a home

Guide to selling a luxury home

Do you have an opinion or have a favourite recipe you wish to share? The TREN community wants to hear your story.

Submit your news here.

Become a subscriber to TREN and eMagazine and be the first to receive local breaking stories, analysis and opinions on the Townsville real estate market.