The bank of mum and dad is in hot demand right now. As house prices soar, especially in Melbourne and Sydney, a growing band of first-time buyers are turning to their parents for help to get in the property market.
Research published by advisory firm Digital Finance Analytics last month found over half of all first-time buyers are getting assistance from parents to purchase property, up from about one in 20 six years ago.
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Overall, the national median house price increased by 1.7 per cent over the quarter.
Even the government's top economic official - Treasury secretary John Fraser - is talking about it. He told a Senate committee this month that the "bank of mum and dad … is becoming more and more prevalent". And he warned it has distorted savings behaviour.
"It has impacts on superannuation - where superannuation is going to," he said. "It has impacts on why people are saving in their older years to fund their children's housing needs, and not just purchases but often rents."
But there's another troubling side-effect from the growing popularity of the bank of mum and dad - it is widening the gap between the haves and the have-nots.
A team of economists from Sydney University and RMIT University recently used a detailed, household-level survey to investigate how "intergenerational transfers" affected housing and wealth between 2001 and 2010.
They discovered those who received $5000 or more from mum and dad were much more likely to own a home than others. A parental transfer of that magnitude lifted the home ownership rates of beneficiaries aged between 25-65 years by 14 percentage points compared to the rate that would be achieved with no transfer. The effect of parental gifts on ownership rates among those aged less than 45 was even more pronounced.
The researchers also found first-home buyers who received parental transfers typically bought a more expensive house than first-timers who did not get funds from the bank of mum and dad.
![Sold: But the purchaser may need help from mum and dad.](/web/20161101033117im_/http://www.canberratimes.com.au/content/dam/images/1/m/y/q/t/l/image.related.articleLeadwide.620x349.gsd5wc.png/1477798143482.jpg)
But the economic modelling revealed the net effect of transfers from parents to children to buy housing had served to increase wealth inequality in Australia between 2001 and 2010. That's because people who got help from their parents were more likely to have accumulated housing wealth.
"The analysis ... does flag the potential for wealth to become increasingly concentrated over time and the important role that housing and housing tenure may play in such an outcome," the study by Garry Barrett, Melek Cigdem, Stephen Whelan and Gavin Wood for the Australian Housing and Urban Research Institute read.
There is a growing risk that people without access to a cashed-up bank of mum and dad will be left behind.
Can anything be done?
The economists say policies to boost home ownership should specifically target groups that are unlikely to receive parental gifts and bequests. Another option is to allow more people access to the bank of mum and dad by making it easier for older generations to "unlock" some of their property wealth to help their children buy a home.
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