No winners in the battle of generations

Richard Baker
2 April, 2018

There is an old saying that when you are in a battle with yourself and you win, you still lose. Perhaps the same thing can be said of our housing shortage.

The winners in the housing market are supposedly the Baby Boomers and Gen Xers. They alone can afford to buy and invest in property. The losers are the Millennials (Gen Y and younger). Apparently, they are doomed to a life of renting.

While it is tempting to dilute complex issues with pat diagnoses, in this case, the temptation is best resisted. Could it be that we are all losers in our current housing woes?

Evidence for this statement came from various mortgage brokers earlier this month. It suggests that 60 to 70% of first home buyers receive assistance from their parents to get into the property market. These figures rise to 80 to 90% of buyers under the age of 30.

These high rates are most pronounced in Auckland. While they level off as one moves into the provinces, they still hover at a rate of one in five withdrawing funds from the Bank of Mum and Dad.

This would challenge the notion of a property-owning rentier class eating lotuses and sipping Cristal while their descendants suffer in landless penury. 

On the contrary, notwithstanding the demands of funding retirement in times of increased life expectancy, Baby Boomers and Gen Xers are having to borrow and create claims against their assets to fund their children and grandchildren.

To the critics who might say “But they can afford it” let’s point out that we do not have some new wealthy, landed, residential property-owning class. A nation does not create wealth by its citizens selling homes to each other. So too individuals cannot spend a residential home. One may feel wealthier with a high property valuation, but no cash accrues until sold. If one sells and buys in the same market then, scaling and regional relocation aside, nothing is achieved.

Borrowing in this scenario is net new debt and expense, and non-deductible at that.

Of course, value can be captured by selling in an expensive market and buying in a cheaper (i.e. regional) market. But here too that value accrues not to the Boomers or GenXers as such, but to their offspring.

There is little evidence that intergenerational love and affection has somehow ceased.  Rather, Boomers and GenXers continue to help their descendants through wills, interest-free and on-demand loans, gifts, guarantees, co-signings, and remortgages.  

Home ownership is widely spread, historically founded and deeply entrenched in New Zealand. The 2013 census data shows 50% of dwellings are owned or partly owned and 15% are held in a family trust. This leaves just over a third (35%) not owned or in a trust. This provides an ample capital base for a lot of recirculation of credit to occur if the 80 to 90% figures of parental support are correct.

The housing shortage has been born from a long gestation of various factors; rural/urban boundaries and underlying cultural attitudes, density and height limits, poor planning, inefficient funding,  skewed taxation, increased immigration post GFC, flawed investment and building incentives, non-scalable construction models and resources, and regulatory processes that delay and defer rather than facilitate and expedite.

Such a lengthy conflation of factors requires an equally long and steady correction. Our housing market is a lose-lose situation for everyone. Only genuine reform can make it a win-win across generations.

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