Look who’s getting rich through property

The average Aussie homeowner is getting older and wealthier, the OECD’s latest report on housing and taxation shows.

“High-income households hold a disproportionate share of housing debt, although lower-income households with mortgages generally face higher relative debt burdens,” the report says.

The figures show a wealth gap where home ownership is dominated by the top 20% of income earners - 80% of people in the highest income bracket own property, versus 60-69% in lower income brackets.

Homeownership rates by income

The OECD found that homeownership and housing wealth are also strongly associated with age, with older households holding more housing wealth and representing a far greater proportion of homeowners.

Homeownership rates over the lifecycle for successive birth cohorts in Australia

And aside from an equality issue, the report also points out that older households tend to have high levels of housing wealth but low levels of income, raising concerns about potential liquidity linked to the taxation of housing.

Are young people being locked out of Australia’s property market?

The OECD’s report shows that homeownership rates have been declining for younger generations, particularly lower-income and lower-wealth households.

And it’s the unprecedented growth in house prices that is making housing market access increasingly difficult for younger generations.

While property prices have surged since the onset of the COVID-19 pandemic, rising prices aren’t a new phenomenon.

House prices have seen strong and continuous growth over the past century, with a rapid acceleration in house price increases in the last 30 years before the even sharper growth in the past two years.

House price growth has been uneven across regions, however, with much more significant rises in large metropolitan areas.

And as a result, the housing market has become dominated by older Australians while young people are increasingly locked out by unaffordable prices and a low supply of properties at the lower end of the market.

Housing tax reforms are needed

Australia’s lack of capital gains tax has led to a monumental increase in house prices that have unfairly affected the young and less wealthy, according to the report.

The OECD’s report suggests that capping tax breaks would help to slow house prices and ensure that household wealth is more evenly spread among generations and income-type.

“Housing tax reforms can have a sizable impact on house prices, with potentially significant distributional effects as well as wider financial and economic repercussions,” the report says.

"To help fix the considerable rise in house prices, the report suggested governments should “ensure the highest-value gains are taxed”.

This would then help to reduce some of the upward pressure on house prices while continuing to exempt capital gains on the main residence for the majority of households, the report explains.

“Gradually removing or capping mortgage-interest relief for owner-occupied housing would also have positive impacts on progressivity, tax revenues and house price affordability.”

The report also says “caution should be exercised” when handing out tax incentives to encourage people to buy a home.

“In most cases, encouraging the supply of housing and promoting the more efficient use of existing housing stock - through both tax and non-tax measures - is likely to have a greater impact on housing affordability.”

The Australian pattern, replicated in other advanced economies, pointed to a concerning trend of greater inequality, the OECD said.

“These figures illustrate growing concerns about the homeownership prospects of younger generations in OECD countries, as homeownership rates decline and become increasingly reliant on income, wealth, and inheritances,” it said.

“While future generations are therefore likely to see continued drops in homeownership rates over time, households with high income, high wealth, and-or access to significant family resources may instead see rising homeownership rates or at least smaller declines.”

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.