Bank of mum and dad: Parents' property key to children's wealth
Updated
There is a widening of inequality between younger Australians whose parents own a home and those who do not, leaving children without wealthy parents with less opportunities over their lifetime, a new report has shown.
The key to wealth is through the bank of mum and dad, with the children of parents who own property more likely to have a better education, be self-employed, own a home, and have higher bank balances and investment income.
That is the key finding of the report titled, "A new look at the channels from housing to employment decisions", by researchers from RMIT and Curtin University for the Australian Housing and Urban Research Institute (AHURI).
"The baby boomer generation of home owners have accumulated very large amounts of housing wealth," the report observed.
"How they choose to pass this on to their children, and how it is subsequently used, could prove to have an increasingly important influence on the welfare of generations X and Y."
The report found that 25 to 45-year-olds who received a cash gift from parents had home ownership rates 15 percentage points higher than their peers, lifting the proportion who owned a home from 45 per cent to 60 per cent.
Housing is the most important component of most households' wealth portfolios.
"For Gen X and Gen Y, I think the outlook is rather negative, certainly for those who are not fortunate enough to have wealthy parents who are prepared to help them," said Professor Gavin Wood, one of the report's authors from the RMIT University Centre for Urban Research.
"The high house prices now relative to incomes are such that Gen X, Gen Y have to take on very large amounts of mortgage debt in order to get into a housing market.
"Moreover, they also have higher levels of debt now in order to pay for higher education, so on the debt side of things, those who don't see help from their parents face, I think, a more difficult future than my generation, the baby boomer generation, at that age."
The researchers found that between 2002 and 2012, around 1.8 million Australians inherited some money at least once, with the average amount of each inheritance being $79,000.
"As intergenerational transfers become more important, they could become an increasingly significant cause of inequality of opportunity, and so this growing wealth divide will warrant attention from policy makers," the report said.
For 45 to 54-year-olds, about two-thirds of total wealth is held in the form of housing, with that figure at 60 per cent for those who are 55 to 64.
A property investor-driven buying spree is continuing to push home prices higher in Sydney and Melbourne, with Sydney recording its fastest annual growth in more than 14 years last month.
With an entire generation at risk of being priced out of owning a home, the report said it is likely many will take on more debt in order to enter the housing market.
"That's a major change we're witnessing now, it's people who are carrying debt later in life, and are more likely to work longer than their counterparts who manage to pay off their debt before pension age (65 years)," Mr Wood observed.
"So it's definitely impacting on the labour market, careers, more widely not just on the young but also older Australians who are carrying debt in their late 40s, 50s and 60s."
The key findings also show that:
- Housing assistance to private rental and public housing tenants has little effect on employment
- Higher levels of housing wealth seem to help older owners who are not in the work force regain employment and help "precariously" employed younger home owners secure their jobs
- Rising levels of mortgage indebtedness appear to be extending working lives
Tax concessions 'bidding up price of housing'
Mr Wood told ABC News Online that a range of tax concessions, including negative gearing, are allowing people to bid up the price of housing in Australia and make it unaffordable.
"That's not the only factor, planning system played an important role, we've had relatively high population growth as compared to Western European countries and also low interest rates, so it's a variety of different factors that have helped to push up house prices," Mr Wood said.
Reserve Bank Governor Philip Lowe last week admitted Australia could take the "heat out of the housing market" and make home prices more affordable by cutting negative gearing and capital gains tax.
"My view is that if you introduce reforms in a smart way, that is by quarantining the position of people who are already invested in housing and only introducing it for new transactions and for new entrance than those fears are assuaged and their impact will be rather to slow the rate of increase in house prices rather than to lower their absolute level," Mr Wood added.
Topics: housing, housing-industry, consumer-finance, economic-trends, money-and-monetary-policy, human-interest, government-and-politics, australia
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