Housing policy needs ‘intergenerational lens’: CEDA

Wealth gaps via property acquisition — or not — are widening even more so as generational change impacts new home ownership, a housing academic has explained.

Australian Research Council (ARC) future fellow and professor at the School of Accounting, Economics and Finance, Rachel Ong ViforJ has said as life expectancies continued to lengthen, housing policy “will need to be formulated through an intergenerational lens” to meet the needs of co-existing generations.

Also a member of the Committee for Economic Development of Australia (CEDA)’s council on economic policy, Ms Ong ViforJ explained that Australia’s intergenerational housing wealth gap has widened in recent years with those fortunate enough to receive help from the ‘Bank of Mum and Dad’ having higher chances of becoming home owners.

Her research in collaboration with Dr Christopher Phelps from Curtin University, found that although the ‘housing wealth’ of older Australians has always exceeded that of younger Australians “as is to be expected given higher home-ownership rates in later life”, this widening gap has “important implications for housing policies in Australia.” 

Citing estimates from the 1997–98 Australian Bureau of Statistics (ABS) Surveys of Income and Housing, Ms Ong ViforJ said these showed the primary home equity of older people (Australians in their 50s) was 161 per cent greater than for younger people (Australians in their 30s). This gap had widened to 234 per cent by 2017–18, she highlighted.

“Housing wealth gaps don’t only exist across the age divide,” Ms Ong ViforJ said.

“The housing wealth of the income-rich was 94 per cent greater than the housing wealth of the income-poor in 1997–98. This had doubled to 191 per cent by 2017–18.

“The HWG between urban and regional areas also doubled from 46 per cent to 93 per cent, favouring those in cities.

“However, the age-based HWG remains much higher than those for income and geography.”

Additionally, data revealed another “alarming divide” between people who are both young and income-poor and people who are both older and income-rich, she underlined.

“In 1997–98, the HWG between these two groups was a massive 532 per cent, favouring older income-rich income units. Over the next two decades, this had more than doubled to 1,230 per cent,” Ms Ong ViforJ said.

The ‘Bank of Mum and Dad (BoMD)’

Ms Ong ViforJ said that the gulf in home ownership between young and old is the main culprit behind the widening intergenerational HWG.

“The ability for young people to step on to the housing ladder is then central in diminishing this age divide, and this is being supported by the ‘Bank of Mum and Dad’ (BoMD),” Ms Ong ViforJ said.

Estimates from the Household, Income and Labor Dynamics in Australia (HILDA) Survey showed that “those who receive a cash transfer or inheritance in excess of $5,000 from the BoMD are more than twice as likely to enter into homeownership than those who do not receive assistance,” she outlined.

Support from parents — in the endeavour for their children to get onto the property ladder — didn’t necessarily need to be financial.

Living rent-free also was a way for them to save for a home loan deposit, hastening their capability to become home owners, Ms Ong ViforJ outlined.

“These tenure transition percentages were much higher than those who received no parental assistance, whose chance of becoming homeowners the next year was only 10 per cent,” she stated.

“Living with one’s parents may assist transitions into ownership if it allows the young to save a deposit more quickly than in the private rental market.

“However, alarmingly, the percentage is extremely low for those living with non-owning parents, suggesting that those from disadvantaged backgrounds are likely to follow their parents in being left out of homeownership.”

Honing effective housing policy

Effective housing policy needed an “intergenerational lens” and Ms Ong ViforJ was a big advocate for abolishing stamp duties.

“This will incentivise downsizing by older ‘empty-nesters’ and may free up larger family homes that meet the space needs of younger growing families,” she said.

“However, this needs to be accompanied by supply-side initiatives that increase housing choice for older downsizers in their local areas.

“Private-rental sector reform will also need to become a priority as more people — old and young — become lifetime renters.”

To prevent “further fraying” of Australia’s social and economic fabric, recommended Ms Ong ViforJ, the national [housing] policy focus must “widen beyond homeownership to promoting housing security and affordability across all forms of tenure and all generations.”

To achieve this, she said, a “comprehensive package of policy reforms” is required.

“There is simply no single policy bullet available to solve this intergenerational challenge,” the professor concluded.

[Related: Thousands of FHBs register for NSW shared equity]