PHOTO: Boomers VS. Millennials. FILE
Baby boomers were born between 1946 and 1964.
Gen X was born between 1965 and 1979/80
Gen Y, or Millennials, were born between 1981 and 1994/6.
“Do you know what’s wrong with the smashed-avocado generation?”
I was on a suburban street filming a story about young people struggling to get into the housing market, when a woman unpacking groceries in her driveway asked about my topic.
As she hit me with that rhetorical, I knew I was in for it.
“This generation is greedy,” she concluded.
On the other side of the footpath, it’s not unusual to hear millennials malign their parents for negative gearing their way to retirement, and inflating prices for today’s buyers along the way.
So which generation had it harder buying a home?
House prices today are far higher than wages
In the millennials’ court, we have the argument that buying a house today is far harder because the rate property prices have soared is well beyond that of wages growth.
In the pandemic alone, the median property price shot up 26 per cent … yes, more than a quarter.
Pinpointing exactly why this has happened is difficult.
We’ve had years of lending deregulation, government incentives, tax breaks for investors and, more recently, record low interest rates.
My colleague, Nassim Khadem, recently wrote about how previous governments allowed this situation to develop.
We’ve seen housing go from a human right to a wealth-creator. Roughly two million people today own investment homes.
The Grattan Institute calculated that, 30 years ago, the average house price was only a few times the standard annual income.
Now it is 8.5 times the average income, according to CoreLogic data. That’s up from 6.8 times income over the past two years alone.
Your standard deposit for a home loan is 20 per cent.
On today’s prices, it would now take somebody on an average income around 11.5 years to save up that chunk of cash.
Given this, it’s unsurprising that we’ve seen the rise of schemes to get people mortgages with lower deposits.
The finance industry has created a secondary money-spinner out of selling people insurance on low deposit loans, plus there’s federal schemes to help you avoid paying this insurance.
You’ve also got the so-called “Bank of Mum and Dad”, where you leverage your parents’ property to buy … more property.
And this election, we have shared equity schemes and supercharged deposits being suggested.
Specialists have noted that many of these schemes to get people mortgages with low deposits only really help if you already have a decent amount of cash or intergenerational wealth.
This adds to concerns that we’re heading for a wealth transfer from property-owning baby boomers to their children through inheritance.
This will only exacerbate the divide between those families who own homes and those who don’t.
But what about interest rates?
Sure, it may be hard getting a deposit together today.
But can you imagine paying 17.5 per cent on the loan once you got it?
This is often the point you hear from people who bought in the 1980s and early 1990s. Take the words of self-funded retiree Grant Agnew, who I spoke to recently for ABC News.
“I got one of the very last home loans — in 1985 — that had a protected interest rate, which was 13.5 per cent,” Grant told me.
Even a rate hike was something this generation of borrowers had not experienced until just last month.
When the Reserve Bank raised the cash rate in May from its historic low of 0.1 per cent, it was the first time it had gone up in 11 years. And even that left it super low, at 0.35 per cent.
However, high interest rates on your loan are still tolerable if the base loan is lower.
This graph from the Grattan Institute shows how much interest people were paying on home loans at various times over recent decades, in relation to their disposable income.
As that graph shows, the time of the biggest interest rate burden was actually in the mid-2000s, during another property boom when there were warnings of mass defaults.
Interest rates are only part of the story
We also know that interest rates only stayed shockingly high for a few years around 1990, before they declined.
So, to get a picture of how much of a burden a home loan is on somebody’s finances, you also need to consider repayments on it over the entire course of the loan.
The Grattan Institute exclusively did this modelling for ABC News.
Essentially, that graph shows that people who bought in 1990 initially found it harder to pay off their mortgages. Repayments chewed up close to 40 per cent of their incomes.
But the burden on them dipped within five years.
Contrast this with people who took out mortgages in 2021.
True, they are starting off with a lower burden, but it’s a slower burn to financial relief.
To steal a line from my editor, one generation got to rip off the band-aid painfully, but quickly, while the other has a festering wound. (And they said buying your first home was the Australian Dream?)
READ MORE VIA ABC
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