Home ownership has an impact on financial and personal well-being over the course of a person’s life. This is a given. However, does it matter if young people are taking longer to get into the mortgage belt? Home ownership is a significant part of the retirement income system in Australia, in addition to the age pension and mandatory and voluntary superannuation.
Here are the statistics: just over half of Australian household wealth is stored in housing, distributed across 10.3m residential dwellings which are amongst the most expensive in the world.
Yet, home ownership is in decline. Across measures modelled by the ARC Centre of Excellence in Population Ageing Research (CEPAR) , home ownership is down -3-4 percentage points over the last two decades, led by young households of all incomes and middle-aged households with low incomes.
The median age of first home buyers decreased in the 1960s and 1970s as home ownership became widespread. Subsequently, from 1981, it has increased by nine years to a median age of 33
Much of this decline has been attributed to affordability and there are both cyclical and structural factors supporting this. The Senate committee on housing affordability in 2008 found it to be at a record low. In the past 20 years house prices grew faster than household incomes.
A greater allocation of credit has become available to investors, supported by tax breaks, and a lag of about 10 years has opened up between the peak increase in demand and peak increase in the supply of housing. Several parliamentary investigations into such factors have suggested state governments should boost supply to fix the latter, while banking oversight was deemed preferable to tax changes to control excessive investor activity.
Yet, there are misleading features in some of the explanations being offered, with the researchers finding increases in migration are likely to overstate the percentage decline in home ownership, as migrants tend to rent apartments (around 75% of long-term temporary arrivals rent). Also, exempting the family home from the pension means test has been found to only inhibit downsizing to a small degree.
The research does point out declines in home ownership should be viewed in a wider demographic context and it’s not just the price tag that is the obstacle. The biggest impetus associated with buying a home is marriage, which implies some potential to catch up over the life cycle.
Importantly, home ownership is just one of several life events that are being delayed, or put off. These include finishing education, the first job, having a child, getting married and… dying. Even deferring their first home purchase by nine years would probably mean younger generations still enjoy home ownership longer than their parents.
However, when it comes down to the indefinite deferral of home purchases there are consequences. Without your own home in old age, security of both tenure and finances can be compromised.
Banks may be reluctant to lend past a certain age and a greater share of home owners may retire with debt. The modelling suggests there is no imminent “wave of bequests” about to occur (as baby boomers retire) and the recipients of bequests are getting older.
Property made up 70% of assets of those dying aged 65-84 and research confirms that bequests are being delayed as life expectancy increases. Pensioners tend to hold onto assets rather than liquidate, to maximise pension income.
Meanwhile, one significant conclusion from the research is that the retirement income system is failing those who rent. When taking account of housing, older Australian renters have among the highest relative poverty rates in the OECD.
Moreover, financial hardship in old age is more likely for single older women with low education who rent. Hardship expectancy for women with similar characteristics, but who owned their home, was half that of those who rent.
CEPAR suggests the retirement income system review by the federal government, due to report next year, is an opportunity to take housing into account, with the aim of narrowing the financial gap between those who rent and those who own.