“Do you know what’s wrong with the crushed lawyer generation? »
I was on a suburban street filming a story about young people struggling to enter the housing market, when a woman unpacking groceries in her driveway asked me about my subject.
As she hit me with that rhetoric, I knew I was in for it.
“This generation is greedy,” she concluded.
On the other side of the path, it’s not uncommon to hear Millennials berate their parents for preparing negatively for retirement and inflating prices for today’s buyers along the way.
So, which generation had more difficulty buying a house?
House prices are now much higher than wages
In Millennial Court, we have the argument that buying a house today is much more difficult because the rate of house price increases is much higher than the rate of wage growth.
During the pandemic alone, the median house price jumped 26%…yes, more than a quarter.
It is difficult to determine exactly why this happened.
We have seen years of lending deregulation, government incentives, tax breaks for investors and, more recently, historically low interest rates.
My colleague, Nassim Khadem, recently wrote about how previous governments allowed this situation to develop.
We have seen housing go from a human right to a creator of wealth. About two million people now own investment houses.
The Grattan Institute has calculated that 30 years ago the average house price was only a few times the standard annual income.
That’s now 8.5 times the average income, according to data from CoreLogic. That’s up 6.8 percent over the past two years alone.
Your standard deposit for a home loan is 20%.
At today’s prices, it would now take about 11.5 years for someone with an average income to save that amount of money.
Given this, it is no surprise that we have seen the rise of schemes to obtain mortgages with lower deposits.
The financial industry has created a secondary source of income by selling insurance to people on low deposit loans, and there are federal programs to help you avoid paying for this insurance.
You also have the so-called “Mommy and Daddy’s Bank”, where you mine your parents’ property to buy… more property.
And this election, we’re offering Share Ownership Programs and Supercharged Deposits.
Specialists have noted that many of these programs aimed at obtaining mortgages for people with low deposits are only really useful if you already have a decent amount of money or intergenerational wealth.
This adds to concerns that we are moving towards a transfer of wealth from baby boomer owners to their children through inheritance.
This will only exacerbate the divide between families who own a home and those who do not.
But what about interest rates?
Of course, it can be difficult to raise a deposit today.
But can you imagine paying 17.5% on the loan once you get it?
That’s often the point you hear from people who shopped in the 1980s and early 1990s. Take the words of self-funded retiree Grant Agnew, whom 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%,” Grant told me.
Even a rate hike was something this generation of borrowers hadn’t experienced until last month.
When the Reserve Bank raised the cash rate in May from its all-time low of 0.1%, it was the first time it had risen in 11 years. And even that left it very low, at 0.35%.
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 paid on home loans at various times over the past decades, relative to their disposable income.
As this chart shows, the era of the heaviest interest rate burden was actually in the mid-2000s, during another housing boom when there were warnings of massive defaults.
Interest rates are only part of the story
We also know that interest rates only stayed incredibly high for a few years around 1990, before falling.
So, to get an idea of how much a home loan puts on someone’s finances, you also need to consider repayments over the life of the loan.
The Grattan Institute did this modeling exclusively for ABC News.
Essentially, this graph shows that people who bought in 1990 initially had a harder time paying off their mortgage. Refunds have eaten away nearly 40% of their income.
But the burden on them has diminished in five years.
Compare that with people who took out mortgages in 2021.
Granted, they start off with a lighter burden, but it’s a slower burn of financial aid.
To steal a line from my editor, one generation had to rip off the bandage painfully, but quickly, while the other has a festering wound. (And they said buying your first home was the Aussie dream?)
There are many other factors to consider in this debate.
Inflation got worse in the last century, which made the cost of living more difficult, although wage increases were also much higher and the real value of your debt fell faster.
Unemployment rates also hit double digits in the early 1990s and remained high for years, which kept large numbers of people from buying.
However, we also know that today’s generation is struggling with increasing job instability. This makes it harder to get a loan.
It also makes it harder to get a pay rise, and lower inflation times – at least until recently – meant that the real value of debts hasn’t fallen as quickly as before.
Deregulated loans, however, offered cheap liquidity.
Our retiree, Grant, told me he felt he had no trouble buying another property in the mid-1990s.
“To buy a modest house in Canberra, I borrowed $85,000 at 6.75%,” he says.
“It was with almost no money in my bank account and it was after working a moderately paid job for only three months.”
At the end of the day, home ownership is down
Another way to look at this history is to simply look at the rates of first home loans throughout history.
People may complain that it is difficult to enter the market, but do they still manage it reluctantly?
An RMIT fact check released this week found that many first-time home buyers entered the market in early 2020 when interest rates fell and incentives were offered during the pandemic.
When everything is set for population growth, that’s the story we get over the past few decades.
Rates for beginners were higher in 2009 than during COVID-19.
A report by Per Capita last week found homeownership rates for Australians were falling rapidly, particularly among those under 40.
Based on current trends, he estimated that fewer than 55% of people born after 1990 would own a home by age 40, down from an all-time high of nearly 72%.
And we know that more and more people are renting.
“If you don’t own your own home when you retire, you’re at greater risk of financial stress and retirement poverty,” says Brendan Coates of the Grattan Institute.
What will happen next?
Whether you think the answer to this debate is inconclusive or settled, these points about the Grattan Institute’s modeling of interest rate refunds are still troubling.
New buyers are returning to 2006 repayments with only a few percentage points of rate increases.
And that’s the minimum the Reserve Bank would like to do to bring interest rates back to “normal.”
To his credit, our retiree, Grant, recognizes how difficult this kind of situation would have been in his day.
“I don’t know who had it harder, but today’s mortgagers are more scared,” he says.
“A 5% rate hike in the 1980s or 1990s would not have meant instant ruin.
It’s unclear what rising rates will do to house prices in the years to come.
Some economists – and even the RBA’s own economic models – predict that property prices will fall, but their crystal balls have been wrong before.
Even lower prices might not make it easier for people who haven’t bought yet, as it might just be accompanied by an increase in interest rates that will make the mortgage burden much the same.
As it stands, you can forgive some Millennials, who haven’t yet purchased, for feeling jaded.
Take the words of 28-year-old single mother Shana.
She was what I thought of on that suburban street, when the middle-aged woman with her groceries told me that this generation is “greedy.”
Shana is desperate to give her young daughter a home of her own. But she lives largely bill-to-bill on a low income, and she has no idea how she’ll ever be able to get a deposit in today’s market.
“The interest payments would be so high, over a very long period of time. And then even to be able to save the deposit,” she said.
Maybe some Millennials are living “throwaway” lifestyles and wondering why they don’t have the money for a home loan.
But, in Shana’s case, she certainly didn’t go out for a long brunch.
“I’ve basically come to terms with the fact that I’ll be renting for the rest of my life, until I inherit something from somewhere. Or marry someone really rich,” he joked. she.