Is the property bubble going to burst when the Baby Boomers retire?

There’s a theory going around that when the Baby Boomers retire we’ll be hit by a demographic tsunami so big it will cause our property markets to collapse.

This prompted the following question from a reader of Yahoo Finance where I write a regular property column:

Property markets to collapse“I have been wondering why no one talks about the elephant in the real estate room.
Could you please give me an opinion of what might happen when the baby boomer population bubble all sell up their real estate in a wave and retire proper?
Obviously they are not going to hold on to their real estate assets forever, one day they will just want cash to spend on leisure, comfort and then care.
Will the property price bubble bleed back down or even rupture?
If I (Gen Y) do take out a mortgage, could the security suddenly be worth way less than I owe the bank?”  – Ashley, QLD.

Here’s my response:

Thanks for the question Ashley.

Yes I’ve also heard the argument that as our population ages and Baby Boomers retire their lack of spending is going to cause the next depression.

Sure the fallout of a Baby Boom gone wrong has been witnessed in Japan, where the number of retirees escalated beyond the number of working age citizens and had a notable impact on their local economy, but it’s very different here. 

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Firstly I don’t think that when Baby Boomers retire they’re going to sell up their properties.

Where are they going to live?

They’re still physically healthy and active – they’re not ready for nursing homes yet.

Most want to retire in the same suburbs where they live now and remain close to friends and family.

Those who do sell up will want to downsize to modern accommodation (much of it which is yet to be built) and won’t have difficulty finding buyers for their properties as developers will snap up their ageing properties to build duplexes and apartments to house the growing population in our middle ring suburbs.

Now don’t get me wrong…

I agree Australia is facing a major demographic shift as more of our Baby Boomers hit retirement age.

But there is a solution… we are going to have to increase our population.

In fact that’s government policy (from both sides).

Let’s look at this in more detail:

I do agree that Australia is on the crest of a demographic tsunami as Australia’s 5.3 million Boomers are going to reach retirement age over the next 15 years.

Let’s look in more detailToday around 40% of our workforce is made up of Baby Boomers (people born between 1945 and 1964).

And the country’s money box faces a double whammy as these Baby Boomers leave the workforce and stop paying tax, yet at the same time many will go on the pension and use our public health care system.

I guess the problem is that most Baby Boomers don’t have enough savings or superannuation to see them through retirement.

This means many will have to keep working longer than they had anticipated but eventually, when they do retire, they will place a massive burden on our financial system.

The Government will have to find the money for their pensions and health costs while at the same time making up for their lost taxation revenue by either:

  • Increasing taxes for those in the workforce, which would be political suicide. Or…
  • Increasing the size of the tax paying workforce by importing younger workers.
    These young skilled adults that will migrate to Australia to fill our increasingly wide gap in skilled labour will be gainfully employed and, given their skills, will earn high incomes and pay their share of tax.

The solution:

Australia’s population will have to keep getting bigger.

This is a certainty.

In fact the Australian Bureau of Statistics estimates our population will grow by around 60% to 35 – 40 million people by 2050.  aust population

This new wave of young people will fill the jobs left by the baby Boomers as well as take on all the new jobs created by our growing economy.

They will pay tax, buy or rent new homes and spend money helping the economy go round.

Unfortunately this population massive growth will bring with it significant social, infrastructure and environmental impacts, but that’s another discussion.

In Australia at present, 87 per cent of us live in urban areas; with an obviously emerging trend toward smaller dwellings and inner city lifestyles more of us are going to be concentrated around our major capital cities.

With more and more of us wanting to live in the same 4 big capital cities, and in fact in the same suburbs of those capital cities, our old friend the supply and demand ratio will keep pushing up the value of well located inner suburban properties.

So Ashley, I can’t see the retirement of the Baby Boomers causing a property market crash.

You may also want to read:

Australia’s Property Bubble – A Smart Investors Guide



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'Is the property bubble going to burst when the Baby Boomers retire?' have 17 comments

  1. Avatar

    February 5, 2015 Jeremy

    Another flaw in your reasoning is that immigrants will still want to come here in the in there current numbers. The baby boomers retiring will not be a Australia problem. It will be a problem for every single advanced country. For the foreseeable future there will not be enough labour to be employed. Meaning that by the 2020-2030 we first world countries will be competing for immigrants with the U.S. and Europe.


  2. Avatar

    January 22, 2015 john

    hello all,

    i have property and i am 10000% convinced its 25-30% overvalued? WHY? Wages are going up on average australia wide in last 12 months of 2.9%….how do i know…..just finished an EBA agreement where i got 9.3% over 3 years……houses in last 2 years have gone up 30%ish in most of metro sydney……like jarred explained…..why on earth would you buy a house now…..europe is up @##@ creek……china is showing cracks…..russia is on the verge…..and i’d say we aren’t too far behind…..all i say is sit on the fence and enjoy the show when it comes to an end…..we should have went through a correction in ’08 but the gov at the time but a #@## load of $$$ into the economy……but the real saviour was china with their $586 billion stimulus package……all is happening is the gov wont let it…..just kicking the can further down the rd and the bubble keeps getting bigger and bigger……man its gonna be scary


    • Michael Yardney

      January 23, 2015 Michael Yardney

      Thanks for leaving your thoughts – clearly we have a different view of the future.
      I’ve explained the reasoning behind mine in the many blogs on this site.
      Having said that I see a period of lower capital growth ahead and (just as in the past) some properties won’t increase much in value and some will fall in value.
      Of course there’s nothing new about this


  3. Avatar

    January 12, 2015 Markus

    I am in no mood to take on a massive mortgage in this current climate. My philosophy is that once everyone is talking about something it is too late. Even 5-6 years ago I heard a cleaner talking about negative gearing as the way to go. “Real estate always goes up”. Even though people have generally bought into this fantasy, I don’t think any amount of propaganda or immigration can maintain the current bubble. The thought also occurs to me that the person writing the article is likely a boomer and also likely has a portfolio of negatively geared houses. But then again, so do most of the current politicians in power…


    • Michael Yardney

      January 12, 2015 Michael Yardney

      You’re right – you should have bought property 5-6 years ago when the cleaner told you too.
      Is it too late now – probably not – property always seems expensive – I know it did when I bought my first property for $18,000 40 years ago and I took out a 30 year mortgage on it


      • Avatar

        February 19, 2015 BOF

        I should like to know where you purchased a property for $18,000. If you thought that was expensive back then, then it becomes obvious if you were to be purchasing your first property now it’s beyond a joke expensive. Which kind of highlights Marks questioned observations. There is a big difference between then and now, and the Boomers seem to brush it off. I’d gladly take out a 18,000 dollar mortgage for thirty years, not $500,000 or more.


        • Michael Yardney

          February 19, 2015 Michael Yardney

          BOF I bought my 1st investment property at 17 Larch Street South Caulfield in 1971 – I received $12 a week rent and was excited by that.

          That mortgae could well equate to the equivalent of $4-$500,00 today


  4. Avatar

    September 13, 2014 Jarred

    As a young, 20-something australian, I’m not ever going to buy a house. Every time I state my opinion on this issue, some boomer chimes in to get me to try adjust my game plan, on the false belief the only way to create wealth is to buy a home, close your eyes and count to 30 years. That is incorrect. Just because somebody does not want to own a home, it doesn’t mean they are financially illiterate and have no game plan for their financial future. To imply that is insulting and extremely narrow minded, it’s that same attitude that blew up the economy in 2008 destroying the stability and security they took for granted and leaving us holding the bag, graduating into a job market full of the words ‘restructure, redundancy, and downsizing”

    What about my business? My skills, abilities.. the fact that if I do NOT tie up money in a pile of bricks, I can leverage it to make much more than 3% per annum growth and compound that over 30 years instead of playing roulette on a home and lining the pockets of some stupid bank and a boomer who purchased a home for chicken feed and is now commanding half a million dollars. Pretty sure the house was in better condition the day you purchased it, not the other way around.

    The way I see it, these “investors” have effectively borrowed prosperity out of the future at our expense, and there’s just no way it makes sense anymore. To me, owning a home is a very old fashioned, default goal. Very few actually stop to analyse the true reasons owning a home makes sense. The entire economy is being globalised and changing rapidly yet it’s still being recommended that we take out a mega long-term loan when you can’t see 12 months ahead let alone 25 years.

    Honestly I want to be able to move around, have the freedom and the ability to leave jobs when I wish on my terms. Not be some useless, passive slave like they were with the absence of the internet and the ability to think freely.

    Being stuck in one spot is what is driving minimum wage in even the highest skilled professions right now. I worked very hard to save $190k for a “deposit” but I’ve come to realize that they can royally shove it. Having that 190 gives me the freedom to do whatever I want, whenever I want, to pick and choose my work, grow my business and expand my skill set.

    It is much better spent on growing myself as a person and creating income streams in new and different ways that a) provide people with a useful product or a service, and b) genuinely raise living standards. Not steal from people who aren’t even born yet. The alternative is I borrow a huge sum, take a job I hate and contribute nothing more than showing up at a desk engaging in mindless crap with old, outdated, irrelevant boomers at the helms of companies that are sinking rapidly because they have failed to adapt.

    My motto is, think for yourself.


    • Michael Yardney

      September 13, 2014 Michael Yardney

      Thanks for taking the time to explain your way of thinking


    • Avatar

      January 11, 2015 John

      Great response to the incredibly selfish attitude of the older generation. A great country ruined by greedy property developers who, instead of accepting that the party is over, want to pump up the population to feed this endless money grab. A house is essentially just a house, it is not a viable means of creating wealth in a sustainable way.
      Why would anyone want to put a deposit on a house that they know is worth at least 50% more than it really should be. This country will eventually go to the wall because of this and every politician and banker that let it happen should hang their head in shame


      • Michael Yardney

        January 11, 2015 Michael Yardney

        Thanks for your comments John,even though I’m sure you realise I disagree that property prices will fall 50%.
        Baby Boomers are retiring, but they’re not dying


  5. Avatar

    April 16, 2014 Mick

    After reading Australia: Boom to Bust it is evidently clear that there is a chronic real estate bubble in Australia. Baby Boomers won’t cause the property crash, its the banks toxic lending that will.


  6. Avatar

    April 15, 2014 Leo

    I have to laugh at your population projections and how this is going to create new demand for housing in Australia. I work with new arrivals and many of them are splitting houses with one family living upstairs and another downstairs putting 10+ family members into a small double storey house. Did you hear about the tragic accident here in Brisbane where there were 12 in one house? This is opposed to the average of 2.2 people in each house that by the way are just getting bigger and bigger. SInce the new government the boat and perm visa people have slowed to an absolute trickle!.

    Which brings me to a thought that few have had. If we get a huge financial crisis in the next five years (thats if you think something might be wrong with the USA)and unemployment KEEPS going up then what happens if the go home to mum syndrome happens -lets look at it. If lots of kids who cant pay their rent or mortgage anymore go home to mum so that there is an average of 4.4 people in each house instead of 2.2 then what does that mean? Half of the houses in OZ are now empty. Think again guys before you think there’s huge housing demand here. With houses many times larger than just 60 years ago this can happen. Wheres your demand then. And I will be selling my house in order to hit the road. I then have no rent and can just live on food and a little diesel as I slowly move around. No rates electricity water insurance etc and my motorhome yearly costs are $1200. Go figure -or go to Thailand to live for a fraction of here -the options are endless and people are beginning to wake up to this hugely expensive OZ life we have. Im encouraging some of my kids to live offshore. Go to ANY other country and look at the history of their real estate -we will be there soon too. Thers just not enough kidsor migrants wanna borrow 400K and pay it off for 30 years. My kids just arent that stupid -are yours?


  7. Avatar

    January 6, 2014 Mark


    Personally I feel I minor property bubble is on the way, nothing compared to The USA bubble, lets be frank it’s in your interests for real estate values to keep increasing which is great, however a young couple living in let’s day Caringbah have 2,3 children can’t really buy a house for less $900000 they may have $150000 for a deposit so they still need to borrow $750000 so that’s around $930 a week for 30 years at this historically low interest rate period, 30 years is an incredibly long time to sustain those repayments,
    Most Australians I feel aren’t in favour of a big Australia especially when we already have severe infrastructure issues,

    Michael can you please answer me this one question, what was the average percentage of income going to a mortgage in the 60’s and what is it today?

    And Australia hasn’t had a recession for over 20 years (it’s good we haven’t had one), The USA stock market is on the brink of collapse again this is my opinion and if it were to crash it would shutter the world,

    Thank you


    • Michael Yardney

      January 6, 2014 Michael Yardney

      You make some good points.
      Some thoughts:

      1. Despite what some doomsayers believe, we are not in a property bubble and the rise in prices can be explained by improved housing affordability brought about by a 7.7% fall in dwelling values between late 2010 and May 2012 (when the housing market bottomed) as well as low interest rates and rising wages.

      You know what…even though combined capital city home values have increased by around 10% throughout the current growth phase, if you take into account inflation over that period, all capital city values remain below their peaks other than in Sydney and Perth.

      2. Here a great article why we’re not in a property bubble:

      3. The average percentage of income going to pay a mortgage is possibly not the best way to measure affordability – the percentage of “disposable” income is better and currently housing See this article that may explain things:


  8. Avatar

    November 10, 2013 Paul Collins

    Good piece, however you are ignoring the biggest issue. The doubling of our actual deaths and the baby boom (80 years later) turns into a death bust. Our natural growth may fall to zero or perhaps even negative and our NOM would have to double or treble to compensate. As the largest voting bloc will be the aged, it is not likely to happen. Our population growth drops from here on as projected by all solid data sources.

    The death bust (80 years after the baby boom) must be factored into any demographic arguments and our natural growth is downhill from here on in.

    You also miss one other solution….
    Taxing the over 65’s more.
    1. GST to 20% and raise welfare and the tax free threshold accordingly to compensate.
    2. Land tax to replace stamps and create reverse mortgages from Centrelink for those that are asset rich/cash for to pay.
    3. CGT on all property sold under 10 years. Exemptions for real reasons to move – health, babies and work. No CGT after 10 years, ZERO!
    4. Death tax on the value over $1million at 25%
    5. Asset test the PPOR (value over $750k) for pension eligibility and also provide reverse mortgages exclusively from the govt, to those asset rich/cash poor. It is not fair that pensioners can live in a $5 million dollar home, have $1m in cash and still get a part pension!


    • Michael Yardney

      November 10, 2013 Michael Yardney

      I agree with some of your arguments and accept that my suggestion is based on continuing strong immigration growth. If that does not occur then we will go down the same path as Japan.
      Considering the size of our country and the persuasion of both sides of politics, I can’t see us lower our population targets in the foreseeable future


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