Australia is facing a demographic tsunami. There are 5.3 million baby boomers (born between 1945 and 1964) and the oldest are now starting to retire.
This dominant market segment makes up 25% of the Australian population; represents 38% of the country’s households; 43% of the paid workforce and holds 49% of our housing assets (in dollar value), split 46% for owner-occupation and 57% for investment housing. Yet they do have great equity in their properties – 93% for owner-resident stock and 86% for their investments and secondary homes.
Two out of three of their residential properties are held in a middle-ring suburb.
The baby boomer generation has always distorted the market – like a tennis ball through a garden hose – with some studies suggesting that this demographic set, by its very existence alone, generated about a third of the house price growth over the last 40 years. Some are now predicting the opposite influence, with aging boomers applying a drag on asset growth of between 20% and 40%, depending on location.
What will happen?
So, what will the boomers do with their residential assets when they start to retire or retread?
Well, five things are possible:
- They will sell their investment properties.
- They will sell their secondary homes. But the market conditions are soft and are likely to remain so for some time, hence concepts like 3RDHOME will gain traction.
- They will downsize, rebuy and pocket the difference. But as we outlined in another post last week, this might pose some problems as the right stock isn’t readily available.
- They will age in place and maybe consider a reverse mortgage.
- They will stay put, but retrofit their homes and rent out a proportion to family and/or tenants.
Whether or not aging boomers will cause the market to implode is open for debate, but a couple of things are pretty certain:
- There is likely to be slower price growth in the next decade than we have seen in the recent past.
- There will be less housing starts and sales on a per capita basis.
- There is going to be more pressure on gentrifying our middle-ring suburbs. We need to think outside of the square here and start, for example, redeveloping our older shopping precincts into mixed-use centres including age-in-place retirement accommodation.
What would help baby boomers and other market segments move (and make housing more affordable) would be to have stamp-duty paid by the vendor and not the purchaser.
As I noted last month, it is useless banging on about the need to reduce taxation on property. In a country where about half of the population relies either directly (i.e. employment) or indirectly on the government for its welfare – reminds me of Ayn Rand’s Atlas Shrugged – and we don’t want to increase overseas migration (yet) – we will need to raise taxes, and property is an easy target.
What we could do is change who pays such taxes and when. Stamp duty paid by the vendor makes sense; so, too, does levying infrastructure charges and development application fees at the time end-buyers settle, rather than at the beginning of the new project.
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