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Is the property bubble going to burst when the Baby Boomers retire? - featured image
By Michael Yardney

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. 

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


About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.

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