Sara’s parents own two homes, but she won’t buy until she’s 80. Here’s why
Young Sydneysiders on the wrong side of a $3.5 trillion wealth transfer are staring down decades of housing pain.
By Kayla Olaya, Daniel Lo Surdo and Cindy Yin
Intergenerational wealth transfers could become the deciding factor for young people like Sara Chaturvedi when deciding to enter the housing market.Credit: Rhett Wyman
Sara Chaturvedi, a 22-year-old student from Rouse Hill, lives with her parents and brother. She isn’t entering a high-paying workforce, and her parents – who moved from India with Chaturvedi when she was six – are paying off two homes after renting for much of their daughter’s life.
Chaturvedi said there’s “no way” she’ll ever own a home in Sydney. On second thought: “Maybe when I’m 80.”
“I don’t think it’s too realistic, looking at what my income is right now, and what it’s projected to be once I graduate,” said Chaturvedi, who is studying communications. “I just don’t think it’s viable.”
Chaturvedi is among the Gen Z Sydneysiders bracing for increased housing stress over the next two decades, as an astronomical $3.5 trillion of wealth is expected to be passed down from Baby Boomers – the generation of highest homeownership in Australia – to their Generation X or Millennial children, who are expected to take hold of a similarly dominant share of the housing market once their parents die.
University of Sydney associate professor of political economy Gareth Bryant has shared concerns about the looming wealth transfer, saying those awaiting a hefty housing portfolio will be “locked in” the market, while those with little to inherit will be “locked out”.
“Wealth transfers are one of the most ethically indefensible types of financial transaction because it’s completely unearned,” Bryant said. “It’s all to do with what family you’re born into, which is entirely random.
“I think that increasingly whether people have access or not to intergenerational wealth transfers is becoming a key factor deciding on whether they will enter into homeownership.”
NSW Treasury has estimated that renters approaching retirement have $78,000 in net household wealth, while homeowners of the same age hold $1.4 million. It comes as wealth inequality across the NSW population worsens, according to the state’s latest prosperity and fairness metrics, as housing costs take up a growing proportion of family budgets.
The growing scale of housing inequity triggered by intergenerational wealth transfers is raising alarm for the retirement and pension system, which assumes retirees own their homes outright before they finish their careers.
“Where older people get into more financial difficulty is when they’re still in the private rental market when they retire,” Bryant said. “We’re going to get increasing levels of poverty in retirement, and insecurity because people don’t have security of housing – that’s one of the biggest long-term risks of the shift that we’re seeing.”
AMP director of retirement Ben Hillier offered an optimistic view, noting that while Australians are buying homes later and taking on greater mortgage debt than previously, we are yet to see the benefits of increased superannuation contributions, which have risen from 9 per cent in 2013 and will reach 12 per cent in July, under laws to support retirees and reduce pension strain.
“A lot of wealth is tied into property, and there’s a lot of young people struggling to get into the property market,” Hillier said. “We think that super and property shouldn’t be enemies, but should work better together.”
Alex Evans, an intergenerational wealth expert from Sydney working at the London School of Economics, said an inheritance tax – which existed in Australia until the late 1970s and is collected in Britain and the US – would alleviate growing inequality scales and ensure a strong standard of public services for an ageing population.
“If we want to maintain the quality of government services and a certain lifestyle, we need to be more serious about how revenue is collected,” Evans said.
“This is an acute issue for young people going forward … you don’t get this opportunity again, so you have to get the tax setting right.”
Young people line up for a rental inspection in Zetland, Sydney.Credit: Flavio Brancaleone
Chaturvedi said: “Rather than having housing being something I have to resort to getting because I have no other opportunities, I want it to be something I can choose for myself, where I can decide what type of lifestyle is correct for me.
“I don’t want to have to rely on the way that my parents wanted to live. And it’s hard to think that the whole option of choice is almost completely thrown out of the window.”
Chaturvedi acknowledges she is “a lot better off” than many other young Australians facing housing insecurity because she lives at home, even though she expects to face barriers to housing security for most of her life.
“After moving to Australia, we were renters for a long time, and moving around a lot as well, so there was no one there to give us a plan B – I think something as simple as that is such a privilege.”
Start the day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.