Property owners get richer, young slip behind as wealth gap widens

Parents and grandparents are getting richer faster - often at the expense of their children. Here’s why.

Surging house prices have widened the wealth gap between old and young Australians to record levels.

Property owners have enjoyed housing wealth gains averaging more than $140,000 in the past year, while many young adults struggle to get a foot in the door.

And the bank of mum and dad is likely to be approached more in the future as rising real estate values – up 20 per cent in the 12 months to October – outstrip homebuyers’ ability to save.

In one generation, the average full-time earnings needed to buy a home has almost tripled – from five years of wages to 14 years of wages in Sydney and similar rises elsewhere, social researcher Mark McCrindle said.

“In real dollar terms, a home is three times as expensive for young people as it was for their parents,” he said.

Gordana Kleut and son Edward Kleut agree that low interest rates have affected the housing market. Picture Matt Turner.

Mr McCrindle said the latest Australian Bureau of Statistics data showed the average household held $500,000 in owner-occupier housing wealth, $213,000 in superannuation and $180,000 in other housing assets such as investment properties.

“Young people who have had superannuation since day one have done well in super, but super is the minor component of household assets,” he said.

“If young people are delayed in getting into property, they’re falling further behind in what drives household wealth.”

Beyond Bank CEO Robert Keogh said skyrocketing property prices had created a “vicious cycle for younger Australians” and banks, government and business needed to work together to get people into homes.

“It’s unfortunate that society is moving more into the haves and have nots, and I don’t think that is a society that any of us want to see happening in Australia,” he said.

“Those with property get ahead in times of pressure like we are seeing now and it is a trend that is also very difficult to stop … younger Australians simply can’t generate the income needed to buy at these levels, especially in capital cities.”

Mr McCrindle said fixing the problem would require government assistance and help from “the bank of mum and dad in a big way”.

“Parents are sold on the fact that property works,” he said.

Social researcher Mark McCrindle says many young people are falling behind. Picture: Jordan Shields

Turner Real Estate chief executive officer Emma Slape said young people should start saving early, “even in small amounts, as lenders carefully look at saving patterns over the longer term”.

“If buying their ideal home is out of reach, they should start with a smaller investment property such as a unit to enter the market,” she said.

Edward Kleut, 30, owns an investment property and says high property prices have left younger generations struggling.

“My parents and their generation have a stronger portfolio to purchase a property now, which has made it difficult for younger buyers to purchase their first property,” Mr Kleut said.

His mother Gordana Kleut, 59, said record-low interest rates were pushing up house prices.

“When we purchased our first home 37 years ago, our home loan interest rate was at 17.45 per cent, in comparison to today where it is below 3 per cent, therefore on that basis it is more affordable to access a home loan today,” she said.

Parents could consider assisting children and grandchildren if they were in a financial position to help, Ms Kleut said.

Originally published as Property owners get richer, young slip behind as wealth gap widens