Youth Need a Hand

Ross Gittins, economics editor for the Sydney Morning Herald and The Age, in his article entitled ‘Youth need a hand to beat generation gap’ says ‘we’ve come to expect that each generation will be better off than its parents with more income, better housing and better healthcare.’

However, he highlights a report by the Grattan Institute Think Tank The Wealth of Generations, which has found evidence to support the fear that today’s generation of youth might be the first generation to have lower standards of living than their parents at a similar age.

Wealth disparity

The report, by John Daley and Danielle Wood, found that over the past decade, older households captured most of the growth in the nation’s wealth. Despite the global financial crisis, households aged between 65 and 74 in 2011-12 were on average, $215,000 better off than households of that same age range were eight years earlier.

Those aged 55 to 64 were $173,000 richer and the average household in the 35 to 44 age group was $80,000 richer; but those aged 25 to 34 actually had less wealth than people of the same age group eight years earlier.

Various developments have conspired to bring this disparity about. Probably the biggest is what is happening to house prices and levels of home ownership. Except for the oldest of households, rates of home ownership have fallen over the past three decades. In 1981, more than 60 percent of 25 to 34 year-olds were home owners; 30 years later only 48 percent of people in that age group were owners. In fact, an increasing proportion of people born after 1970 will never get a foot on the property ladder.

Safe as houses?

For most people, wealth is essentially determined by the value of their home and superannuation; however, housing is no longer the guaranteed fast-track way to wealth that it used to be. Traditionally, housing created additional wealth; because, the value of houses increased dramatically, thus providing people with growing equity. Christopher Joye, an executive director of Yellow Brick Road Funds Management, says ‘for the last 20 years or so house prices grew by nearly 8 percent a year; however, over the four years ended December 2013, they have only grown by 2 percent per annum.’

The head of research at RP Data, Tim Lawless, says home owners who bought in the last few years will find it much harder to build up equity. If house prices only rise in line with inflation, or wages, there are no windfall gains and no incentive to get into the housing market early.

Your retirement

On the other hand, in retirement you will be earning less money than what you are now, so there probably won’t be enough to pay rent, or to make mortgage repayments. Having a fully paid-for home will make your retirement much more comfortable. My tip is: Try your hardest to get into the housing market sometime before you retire.