The ‘priced out generation’ and what they should do about it

How long does it take to save a deposit for a house? And how much would house prices increased by then? It is a hamster wheel. Dudley can do the calculations using his perfect hardsaving couple who will have to sacrifice all little pleasures movies, eating out, movies, definitely no child care costs.

"How long does it take to save a deposit for a house?":
About one year for a home, which might not be a house.
About 4 years to buy without mort-gage.

Spreadsheet formula for calculating time to save price of home - without mortgage - with growing income.

Key variable / parameter is Time: 3.86 y

Home price:
growth 6% / y, inflation 0% (for nominal rate), growing for 3.86 y, initial price / single average disposable income 6:
= FV((1 + 6%) / (1 + 0%) - 1, 3.86, 0, -6)
= 7.55 times initial single average disposable income after 3.86 y.

Savings:
Net nominal savings interest rate 3.5% / y, inflation 0% (for nominal rate), saving for 3.86 y, disposable income growth rate 4% / y, couple disposable income saving rate 2 * 90% = 180%:
= FV((1 + 3.5%) / (1 + 0%) - 1, 3.86, 0, PV((1 + 4%) / (1 + 0%) - 1, 3.86, 2 * 90%, 0, 1))
= 7.55 times initial single average disposable income after 3.86 y.

Vary Time until both 'times initial single average disposable income' are equal (difference = 0).
Change key variable / parameter Time manually or using 'Solver' or 'Goal Seek'.

No "Bunk of Dad&Mum", seek free / low cost rent. Rent or mortgage are drags that severely slow savings.

Err,
= 7.51 times initial single average disposable income after 3.86 y.

It is clear that housing is comparatively more expensive than it was for us baby boomers however I resent being told that it is our fault and that we were lucky. Interest rates were 18% when we purchased a first house in 1985. We did not buy in a trendy area and we made do with second hand furniture plus I managed to save a decent amount of money for the deposit by working long stints in the wilds of PNG for over 3 years. Our children, early and mid 30's both own their houses outright already through being careful and not from handouts from us. My point is, youngsters can still own a home if they want to make sacrifices which seems to be a somewhat foreign concept these days and we expect the Government to solve all of our problems!

They were that high for only 10 months.

I still remember reading comments in, The Herald Sun back in the day.

People complaining about 17%+ interest rates and others saying, you should have been smart like us and locked in fixed interest at 13.5% Ha Ha, we were smart you were dumb

Variable rate fell back below 13.5% and those same people that locked in were squealing like stuck pigs, it's not fair, we should be allowed to break our fixed loan option and go back to variable.

The sad thing, they were allowed to.

Nice deposit rates thanks to Paul Volker and his merry men.

I see that the government has just brought forward a scheme which will allow first home buyers to purchase a property with a deposit of as little as 5 per cent without needing to pay lenders’ mortgage insurance. Economists are already warning that property prices are likely to rise as a result coming as it does on top of recent cuts to official interest rates.

When the inevitable happens and prices do rise as predicted how long before the boomer generation is again blamed for the fallout even though gen z and millennials outnumbered boomers at the last election.

JAMES. I’d be very interested in the % increase in house (and land) prices caused by all the extra rules, regulations, approvals, permits, standards, environmental regulations etc. And hence also lack of productivity. And how many of these increased regulations and costs have effectively been demanded by the same “young ones” who are now complaining. Some facts if available would be very interesting, especially following the “productivity” summit. Have these regulations reduced house (& land) building productivity?

PS Govts (and everyone else with any kind of debt, including HECS), have always liked high inflation to effectively reduce debt burdens.

PPS I agree with Dudley. No debt. For myself, I very rapidly paid off my overdraft when I worked out that I was paying about 22% in total fees (18% interest and 4% bank fees) for the “privilege”. Never been a fan of bank debt since. Personally, I am now well into my 70s, still renting, working 5 long days a week, no smoking and minimal alcohol, and saving and investing hard to buy a house, for cash, more or less outright.

Next the same “young ones” will be complaining about increasing electricity supply & costs when they are the ones who by and large have campaigned for the policies causing the shortages. Never seeming to consider the environmental damage being caused by their costly and environmentally unfriendly constructions.

I am a Gen Xer so I can see both sides of the story. My life has been easier thaen young people today - I acknowledgethis fact. But not as easy as boomers before me.

Grattan Institute illustrates it better then anyone else in this debate. Imagine 2 neighbours, one who is 70 and one who is 40. Both earn $100,000 yet simply because of a wave of John Howard's wand in 2007, the 70 year old pays no tax, while living in a paid off residence, with no children to support and drawing down on publicly funded health care. Yet his younger neighbour, with a mortgage, 2.1 mouths to feed and a HECS debt is paying 30% tax.

Is that fair? Is that the Australian way? Why is it that simply because I too will soon cross the magical 60 year old threshold, I no longer have to pay tax for the next 28 years (per life expectancy - almost as long as my working career) and instead rely on an increasingly smaller pool of workers to fund my health care, aged pension and other services that I will draw on in bigger ways than I currently do. This is unjust and discriminatory to younger Australians. I can see this as clear as day yet I am ashamed when boomers somehow can't see this intergenerational theft. Howard should be put in the stocks for this.

How much tax do you pay on the savings you withdraw from your bank account?
How much tax should I pay on the withdrawals I make from my retirement savings in my superannuation account? Withdrawals from super are capital, not income and we don’t tax capital, except as super death benefits.

Super withdrawals are not income. They are not included in any income tax return. They are not included in the income test for the age pension. For the age pension calculation, the assets in the super balance are deemed, just like a bank account.

Super withdrawals are not tax-free; they are tax paid.

"Super withdrawals are not tax-free; they are tax paid.":

Correct.

Inappropriate nomenclature:
* 'super pension' and 'income stream'
instead of
* 'disbursement account' and (capital) 'withdrawal', 'drawdown' and cash-flow'
are sources of confusion.

Untaxed passive income is an additional enticement to convert human capital into active income, then to passive capital required to generate said passive income.

Passive capital is economic fertiliser for active income.

More capital, more active and passive income.

More unproductive use of tax, less capital, less fertiliser, less income.

Untaxed passive income means you are
providing incentive and saying to people that your better off not working for a living, not producing anything but just buy non productive assets such as a house and receive passive income to live on. Can’t see much enticement there for human capital to be converted into active income.

"Can’t see much enticement there for human capital to be converted into active income.":

Passive income requires capital.

Capital comes from saving.

Savings come from income, passive or active.

If no passive income then must come from active income.

Active income comes from work.

Work requires capable people.

No work, no income, no saving, no capital, no passive income.

The incentive to convert human capital into passive capital and income is the reality that people eventually exhaust their human capital and must rely on passive income to survive.

Read my first sentence before you go around in circles, passive income is great but should be taxed higher than income from productive work.

"passive income is great but should be taxed higher than income from productive work.":

In Australia, passive income is taxed at the same rate as active income, except in super.

Taxing passive income at higher rate would result in less capital to be invested, part from taxes not being efficiently collected and invested, part from reduced saving and increased spending.

The "circles" / spirals becoming smaller.

Difficult to say what is the optimum tax rate difference for active and passive income so a difference of 0 is implemented. Makes taxing simpler.

Capital allocation is productive work; preferentially financing more productive endeavours making possible more productive work.

That is wrong Dudley, if I buy an existing house with debt to rent out and after all my tax deductions and 50% capital gains discount when I sell at a profit if you think that works out equivalent to the same tax as I would of paid for the same amount earn’t as a wage earner you are mistaken, pretty easy to calculate.

"buy an existing house with debt to rent out and after all my tax deductions and 50% capital gains discount when I sell at a profit if you think that works out equivalent to the same tax as I would of paid for the same amount earn’t as a wage earner":

Wage earners don't bear the cost of inflation; their wages increase with, are part of and set general prices.

Before capital makes a real profit, it has to receive nominal returns in excess of:
Inflation 2.5%, real return 0%, tax rate 30%;
= ((1 + 2.5%) * (1 + 0%) - 1) / (1 - 30%)
simplified:
= 2.5% / (1 - 30%)
= 3.57%

After 50% capital gains discount the marginal tax rate for capital gains income and active income IS THE SAME (outside super).

Plenty of argument about the merits of discounting using CPI vs 50%. Favouring long term vs short respectively.

A 50% discount on capital gain on housing profit has left Australians property investors far better off than earning the same amount as a wage earner, not logical to say after capital gain discount wage earners pay the same tax rate. If property had only risen the same as inflation in the last 30 years there would be no discussion.

"A 50% discount on capital gain on housing profit has left Australians property investors far better off than earning the same amount as a wage earner, not logical to say after capital gain discount wage earners pay the same tax rate.":

Most commonly, unrealised capital gain accrues over years and is realised in one year and is in addition to any other income in that year. 50% discount halves the marginal tax rate from 47% to 23.5%. Which provides rough compensation for inflation.

"If property had only risen the same as inflation in the last 30 years there would be no discussion.":

Home price / wage ratio has increased mostly due to decreased interest rates; due to WTO 2001 induced China Syndrome.
https://www.macrobusiness.com.au/wp-content/uploads/2023/03/Capture-105.png

The 50% discount has been in place since 1999.

Do you really think you had it harder than baby boomers. Most baby boomers of the 1950s lived in 2 bedroom weatherboard or fibro shacks, outside dunny, no a/c, wood stove, copper boiler, no refrigerator, no TV, computers, phones, mobile phones etc. Walked 8 km to school. If you wanted to study annything you went on the bus to the town library. There were no supermarkets or shopping centres. No McDonalds or KFC. Apprentices were paid virtually nothing till year 3. We moved out of home by 18, worked 60 hour weeks for 45-50 years, saved for a house deposit, paid up to 14% interest on home loan. I was lucky to get a scholarship to go to university which was free but entrance qualifications were extremely hard. The silent generation before went through the depression and World War 2 went through even harder times. You don’t appreciate how lucky you are living in this country!

Yes I do. You paid less tax as a percentage of income than generations after you , so proportionally boomers had more disposable income. At the same time, houses prices were 3 times cheaper relative to wages. You had no HECS (for those extra lucky post-Gough boomers) and you lived at a time when Australia hid behind a tariff moat, shielding you from the excesses of globalisation and competition. You came of age in a golden era that will never be repeated. You ravaged what was left of the conservation you inherited and drove on roads unimpeded by snarls and speed cameras.

In the lottery of life, boomers won big time. So acknowledge it and now put your hands in your pockets and pay your way. Why should my kids pay for your health care while you grow capital. That's not fair. If you can pay, then you should. No one is suggesting blanket taxes on all elderly. But if you have the means and an income, contribute back. None of you are so critical to the country and who's sacrifices were so monumental that you deserve a free ride. 

Alan, yes there is a lot of misinformation in the media about boomers. To compare a person who has had 50 years to accumulate assets against someone just starting now is too silly for words. That is debate in our country. Another furphy is the statement that boomers had free university. The reality is about 10% of boomers went to university and then many older boomers paid fees or got a scholarship. I missed out on a scholarship so missed uni. Instead I did law through the Solicitors' Board scheme in Qld. I worked for a law firm as an articled clerk and studied at night . It took me 7 years. We were told what text books to use and left on our own. The pay was miserly so I had to work weekends too doing things clearing overgrown yards and laboring. My first house in an old gold mining town had timber stumps with the bark still on. The soil under the house was laced with arsenic from the old mullock heaps. Walking on the verandahs would make you seasick as they rocked and rolled. Then waiting around to find out whether we would be sent to a certain Asian war. Real beer and skittles. The other furphy is the idea we paid less tax than now. Most of my working life my marginal rate was in the late 40s. Most workers now have a 30% marginal rate. A few suggestions to current generations, give up expensive devices and streaming services, ditto takeaways and pubs. Get a second job on the weekend. And access all the schemes to get into the housing market which were not available to us. Buy an investment property and rent to save a deposit. And pray the Government does not take that avenue away from you by adjusting the capital gains discount.

"paid less tax as a percentage of income than generations after you":

Much the same from 1980:
https://www.pbo.gov.au/sites/default/files/inline-images/image_141.png

"houses prices were 3 times cheaper relative to wages": 1 - 3 = -2? Or a third?

Payments as portion of HOUSEHOLD income 1985 and 2025 same.

Both interest and principal included in nominal mort-gage payments:

1985:
= PMT(17.5%, 30, (75000 - 2000), 0) / 20000
= -64% (- = into fund)

2025:
= PMT(6%, 30, (1 - 10%) * 800000, 0) / 80000
= -65%

"Is that fair"

Of course its fair because the 70 year old was 40 once and paid the same or higher taxes, paid for his super and looked forward to the time when he would benefit from the tax free pension that was the bargain promised in return. Its fair because the 40 year old will get the same deal, and hopefully when he is 70 and is enjoying his tax free pension will not berate the 40 year olds that are 30 years behind on the same path to retirement and their tax free pensions.

correction:and hopefully when he is 70 and is enjoying his tax free pension will not be berated the 40 year olds that are 30 years behind on the same path to retirement and their tax free pensions.

PS. The above assumes that future governments do no succumb to the politics of inter-generational envy as its the 40 year old who may pay the price if his tax free pension becomes a shadow of its former self

PPS.Since super was only made compulsory after 1992, the 70 year old likely bore bore the greater burden during his productive years because his was the last generation to fund not only their own retirement but also the retirement of the generation that came before them.

"Imagine 2 neighbours, one who is 70 and one who is 40. Both earn $100,000 yet simply because of a wave of John Howard's wand in 2007, the 70 year old pays no tax, while living in a paid off residence, with no children to support and drawing down on publicly funded health care. Yet his younger neighbour, with a mortgage, 2.1 mouths to feed and a HECS debt is paying 30% tax."

The 70 year old has paid 50 years of tax, the 40 year old only 20 years of tax.
The 70 year old and the 40 year old both pay taxes like GST and government rates.
The 70 year old spent 25-30 years paying off a mortgage, making sacrifices and raising a family with all those medical and education costs. The 70 year old took out a mortgage at 12% which rose to 17.5 %. The 70 year old later paid off the HECS of his children. The 70 year old has taken out private health insurance. The 40 year old has a 6% mortgage, eats out weekly, takes overseas holidays, sends his kids to private schools and has multiple subscriptions. But still the 40 year old greedily covets the assets of his older neighbour with little understanding of what his neighbour did to earn those assets and less inclination to make the same sacrifices.

Populate and Perish
Unsustainable immigration is the main driver to the destruction of our lucky country.
It is the simplest level to turn off but the hardest lever to use due to vested interests.

So, there's a housing affordability problem, and it's all due to a supply shortage.
How about it's mostly due to a demand problem.
Just looked it up.
For the last 4 years, from the 21-22 financial year to the end of the 24-25 financial year, Australia's net overseas migration figure is expected to reach 1.55 million people.
That's an average of 1000 per day over 4 years.
Seems to me that there's a simple solution hiding there somewhere.

"simple solution hiding there":

Require immigrants have the skills and capital to build their own homes and supporting infrastructure themselves?

No.
The expectation is that homes and infrastructure will somehow be provided by those already here.
Guess what ?
The supply of housing has been short for years, and services and infrastructure are always a long way behind that required.
You can't play catch-up for ever.

No.
An extra 1000per week is unsustainable.
The expectation is that both housing and infrastructure will be provided by the current population.
There has been a housing shortage for years, and essential services and infrastructure have already failed to keep up.
Need to increase the supply of all three ( physically and economically impossible ) or decrease the demand.
You can't play catch-up forever.

Either that or oblige new immigrants to pay $100k per head upfront to fund the required new infrastructure that their mere presence requires. That should solve the mass migrant intake, as migrants would need to have shown their worth by having a lazy $200k apiece to come here. Problem: such migrants would have skills and capital, meaning they are less likely to vote Labor.

"The generational clash"

"Envy is sometimes a corrosive emotion " always has been and always will be.

Each generation, faced with landscapes of challenges and distractions, must chart its own course through envy’s shadow. The temptation to compare, to measure ourselves against the achievements or possessions of others, persists relentlessly amid the relentless hum of modern life. Yet, wisdom lies in resisting the lure of “white noise”—the vacuum of opinions, judgements, and expectations that cloud our judgment and erode our inner peace.

Progress comes not from dwelling in envy, but from mindful engagement with the present. With patience, and in purposeful action, we find our way beyond envy’s reach.

Well said.

It doesn't help that in the modern world it is so easy to compare your fortunes with others, thanks to the internet. I had no clue at all how my peers were doing when I was starting out as an adult - apart from via physical observation of specific people. Nowadays you can find like-minded souls, whatever your grievance, and be miserable with them in a few minutes.

So, there's a generational bubble of people unable to ever buy a house? Pretend that's a a valid view, then ask “ok, who will the future buyers be?”

I'd be very interested in your thoughts…

Hi Greg,

It's a good question regarding future buyers. I'd note that housing turnover (transctions vs total stock) is around 4% currently, which near all-time lows reached during Covid and the 1990 downturn. That's down around a third from a decade ago and about 40% lower vs two decades ago.

So fewer transactons are pushing prices up.

It's probably the basis for a separate article.

"housing turnover (transactions vs total stock) is around 4% currently, which near all-time lows "

I wonder if crippling transactional costs (around 6-8% of an already high purchase price ) may have something to do with it?

If so then its another government driven burden that is contributing to non affordability and is on top of loose monetary and immigration policies all of which got the ball rolling in the first place.

Thanks James
Turnover and workforce mobility are related I guess.. But that's another story.

My question simply asks: when the exceptional, unprecedented, large pool of wealthy boomers currently in the market pay insanely high prices ….what similarly large pool of wealthy buyers replaces us?.

There's whats on my mind:
I'm a boomer, and think my wealth began with our first capital acquisition (1975)…a home. It cost less than 5 times our household income.

Young people now must pay 12+ times. With help from parents many do, most can’t.

All I had to do was not mess up… keep sensible leveraging, let compounding do its thing…and voila. I'm a lucky, wealthy boomer.

I know a ton of 30+ year-olds that can't get on the same capital-building ladder..no, “lift” is a better word.

Finally, to mention the supply side of the equation. If supply has been fixed over the next decade or so (suuure), then the income:housecost multiple must revert to something sensible.

Right?

"It cost less than 5 times our household income. Young people now must pay 12+ times.":

Could, not must.

Home costing $500,000 being 12 times household after tax income, implies household income is:
= 500000 / 12
= $41,667 / y.

Two minimum wages $948 each per week, household income would be:
= 2 * 52 * 984
= $102,336 / y
After super, after tax:
=$88,012

Just need to save $500,000+ and done.

Or a 20% 'deposit' of $100,000 and pay mort-gage:
= PMT(6%, 30, 400000, 0)
=-$29,060 / y (- = pay)
which is:
= 29060 / 88012
= 33%
of after super, after tax disposable income.

If there truly is a generational bubble of people unable to buy a house, why?

Firstly: House prices seem expensive but according to a speech by Philip Lowe that is mainly due to high land prices, for example, my wife and I live in a small country town south of Sydney. When we bought our home in 1992 the rateable land value was deemed at $70,000 on a 700 m2 block, our last rate notice stated a land value of $1,160,000 add the cost of building a four bedroom house and bingo $2 mil. And our rates keep going up.

Secondly: “Real Estate” is priced purely on supply and demand, even with a slightly softer market due to new land releases, property’s similar to ours are regularly selling for $1.8 mil to $2.5 mil.
If there’s an entire generation who can’t afford these prices who exactly is doing the buying?
It can’t just be a “Ponzi scheme” controlled by cashed up boomers and investors as a young lady I recently spoke to claimed.
We weren’t lucky enough to have children, but my wife’s nephew’s and nieces have each bought houses in their late 20’s, one is on to her second, yes they all had some help from parents and are in well paid professional jobs, but they got on with it.

Thirdly: It seems to me the elephant in the room is the relative low wages so many young people are forced to accept, even with tertiary qualifications, the low level of collective bargaining power dooms this generation to a lack of social mobility that we took for granted.
Add to this, high student debt, which doesn’t seem a priority for them to pay off ASAP.

As Joe Hockey so tactlessly quipped “If you can’t afford a house in Sydney, get a better job”

He was dead right of course but that won’t help the army of young workers in hospitality, retail, sales and the “caring professions” none of which pay a six figure salary.

Your comment on Young people being forced to accept low paid jobs goes straight to the heart of the productivity issue the government pretends to care about. Less money spread over more people means lower incomes. When housing doesn't follow the same path the affordability gap grows. So one response to affordable housing might be to get serious about productivity. But don't hold your breath.

Hi Greg,

Future demand is a legitimate question. Lots of factors involved - ageing population, wealth transfer, rates, credit availability etc.

The government has more control over supply though it's a very long term solution.

I'm a late Boomer. In 1985 I was earning $20k, put down my life savings of $2k to buy my first home costing $75k. It was a shell, no furniture, not a blade of grass, sheets for curtains, interest rate rising to 17.5% in 89 and I thought I'd spend the next 30 years paying it off.
But now I'm a parent and my son in his first real job after uni on $80k can't afford an entry level first home for $800k. Believe me, I want him out of the family home and independent. Grand kids would be nice too. Gen Ys and Zs, don't be deceived into blaming us, your parents, for unaffordable housing. We're on your side. But get angry and use your voting power as a bloc. Then a solution will be found.

The cost to service a $75k purchase at 17.5% represents 65.6% of a $20k income.
The cost to service a $800k purchase at 6.0% represents 60% of a $80k income.
So in terms of servicing burden it would appear that not much has changed.

Silly, George. Ignoring the amount the latter has to pay back - the quantum of debt!

"Ignoring the amount the latter has to pay back - the quantum of debt!"

The "quantum of debt" is precisely what purchasers ignore when calculating what they can afford to pay for their next property which is almost entirely based on servicing burden. Hence the quantum servicing burden not debt is the main driver of escalating house prices and why incremental changes to same (interest rates) have an immediate impact.

"Ignoring the amount the latter has to pay back - the quantum of debt!":

Payments as portion of HOUSEHOLD income 1985 and 2025 same.

Both interest and principal included in nominal mort-gage payments:

1985:
= PMT(17.5%, 30, (75000 - 2000), 0) / 20000
= -64% (- = into fund)

2025:
= PMT(6%, 30, (1 - 10%) * 800000, 0) / 80000
= -65%

What is different is the number of after tax AVERAGE WAGES per HOUSEHOLD has increased from 1985 to 2025.

To winkle adult offspring out of family home may require cunning enticements such as match making and a 'Bunk of Dad&Mum' contract.
Leaving home without a stash of cash is likely a lifetime of financial disadvantage: a 'mort-gage'
Bribing leaving home with a large gift from 'Bank of Mum&Dad' might be more disadvantaging.

Likely can find an "entry level first home" for $400,000.
Time for offspring and 'partner' to save:
= NPER(6%, 2 * 65% * -80000, 400000, 0)
= 4.5y

Interesting calculations and comments. Thank you. #1 son plans to solve, or at least delay, his housing affordability problem by joining the airforce.
When my generation was buying our first homes there were frequent land releases on city fringes and more modest houses specifically aimed at FHBs available. So to help with affordable housing governments could release more outer land to raise supply, instead of just promoting inner city apartments and densification on higher priced inner city land. Also construction was less regulated in the 80s so cutting costly and non essential regulations is another way to reduce housing costs.
https://www.smh.com.au/property/news/anthony-is-trying-to-build-a-house-which-comes-with-86-conditions-20250821-p5mon7.html

Can you please provide an example of a developed Western country that does not have a housing problem (ie: entry cost and supply)?
Thought so…..there may be one/two?
No doubting the importance for the younger generation to acquire a home!
There will be change ahead as you suggest.
As for the “protesting in the streets” - I suggest that people’s lives matter more than bricks and mortar and the younger generation seem definitely attuned to an empathetic outlook.
As for the “Boomers” reference YES they (we) have benefited from a broad range of economic cycles.
One advantage that Boomers generally benefitted from during formative years, was not having to allocate net income to acquiring digital devices and subscriptions to a vast number of streaming services with added access costs and the list goes on….
Even those who rent and who are saving towards a home get hammered through excessive rent rises due to supply/demand.
So Build Baby Build (sorry for the orange man quote)!
Solution:
1. Increase number of cities across Australia to 500k to 1m population.
2. Increase population growth to >50 million

If we don’t do this China may well want to!

Stephen,

A lot of the developed world has the same issues on affordability because as I mentioned in the article, they've been also largely happy to push up asset prices without addressing their own economic weaknesses.

The situation in Australia is more extreme than most though.

As for increasing population to that degree, that would push up demand and surely isn't the answer.

Boomers have not had it all their own way. I started work in 1969 when there was no superannuation for most workers. It took 23 years for super to be provided to most workers and even then it was only 3 % and has only this year reached 12 %. Statistics will show that most boomers do not have large balances in super. Their only substantial asset 50 year later is property, mainly the family home. If they live long enough most of that value will be used up in getting a place in an aged care home. A young person starting work 50 years after me will get the benefit of full super contributions and earnings. As well they may have a house free of debt when they retire. It took me 50 years to pay off my house. So we need to look at the full picture before we talk about intergenerational unfairness. Perhaps the Coalition scheme to give people access to super for a housing deposit is the best way to address the housing access issue. With 12% going to super they have plenty of time to build up a good retirement balance, even allowing for the money withdrawn for housing.

"access to super for a housing deposit":

Better would be 'access to super to avoid mort-gage'.

Time for couple to save:

Saving 12% / y:
Tax 15%, return 5% / y, portion of after tax saved 12%, savers 2, income -1 (- = into savings), Savings target as times combined after tax income 8:
= NPER((1 - 15%) * 5%, 12% * 2 * -1, 0, 8)
= 21.2 y

Saving 80% / y:
Tax 15%, return 5% / y, portion of after tax saved 80%, savers 2, income -1 (- = into savings), Savings target as times combined after tax income 8:
= NPER((1 - 15%) * 5%, 80% * 2 * -1, 0, 8)
= 4.63 y

Inflation is more important for slow savers.

I guarantee that there is not one "young person", who has bought a house, whose next concern after the purchase is how much has the value of their investment increased.
All these individuals who have screamed for house prices to fall, immediately become capitalist and dream about how much profit they are making,. they then become part of the problem.

,"guarantee that there is not one "young person", who has bought a house, whose next concern after the purchase is how much has the value of their investment increased.
All these individuals who have screamed for house prices to fall, immediately become capitalist and dream about how much profit they are making,. they then become part of the problem."

Very true. Reminds me of student discounts but when did you see a professional offering student discount.

Let's hope the young people don't notice the mountain of debt being amassed by the goverments that will one day avalanch down on their living standards as the interest bill alone will duck spending power from future goverments

Crystoffer,

Why would they care if they are buying a house to live in for the long term.

Your comments are typical and part of the problem - people regard property as a financial asset in Australia when it shouldn't be. It's something you live in.

Falling house prices is exactly what needs to happen and would transfer of wealth from current owners to prospective owners ie. young people.

Good post below from Aussie HIFIRE, it is very useful to normalise these numbers relative to income.

To add another step to Aussie HIFIRE’s analysis, consider the missing link of the increase in one’s maximum mortgage borrowings/income due to the dramatic drop in mortgage interest rates over this period (and noting that lenders usually cap repayments/income).

Basically a home buyer can now have maximum mortgage borrowings/income ratio somewhere around 3 times that in the 80s due to mortgage rate falls. I’m not sure when in the 80s Aussie HIFIRE’s “in the 80s” refers to, but new mortgage rates were somewhere in the higher teens so my 3 times mortgage/income ratio is approximate (I’m travelling and don’t have access to my data sets or time to explore that more throughly). That is a large part of the increase of house prices/income Aussie HIFIRE shows, ie 2.5 to 8-10.

In summary, it may be that a significant contribution to the large increase in house price/income is driven by lower mortgage interest rates enabling buyers to obtain higher loan/income ratios which can drive up house price/income ratios.

ps
There was a Firstlinks article in recent years that did the above calculations over a few decades to analyse affordability of (I recall) median house price on something like median FT income and it showed that prices relative to income somewhat followed mortgage rates over medium time periods.
JAMES GRUBER
I couldn’t find that article; do you recall it? Thanks.

Hi Peter,

I don't recall though it may have been before my time at Firstlinks.

I'll have a search.

James

Interestingly, the supposedly independent and progressive teals are also a very strong supporter of NIMBYs in their electorates. Not unexpected, as their electorate are rich, asset owning boomers and teals want to be re-elected. This of course causes the house prices to raise even faster.

There seems to be no political party or grouping in Australia that would support lower house prices.

Worse, there is no political party IMHO that would like to enact the hard reforms leading to major increase in productivity. And this is the only feasible way to grow our economic pie faster then the population rises. This inaction will affect everybody, also the boomers in the long term, unless they will happily die off in time.

The vast majority of politicians in Australia are house investors. They will do all they can to keep house prices rising.

Simon has mentioned that 80% of Singaporeans live in public housing. That is not correct!! HBD flats, built by the governmet are solld to the public (usually on a 99 year leases) sell for well over a million dolars. People who can not afford to buy, live with relaltives or rent a single room or share a room with other renters. I think people have to adjust theiir expectations

Dear Peter
would you adjust your expectations?
Kevin.

No, but I might work harder or have 2 or 3 jobs to fix up the shortfall!

The only way house prices can permanently be lower is if Australia has zero population growth. As soon as there a requirement for more housing, the cost of a new house on a newly created residential lot on the outskirts of existing suburbia comes into the picture and sets the pricing for all other dwellings.
In fact, even with zero population growth there will still be a requirement for newly created dwellings because the number of people in each household is falling. If it falls from 2.2 to 2.1 people per household, that is a huge number of additional dwellings for exactly the same number of total population.
And why does a new house on a new estate cost so much - land is a very small component. Taxes and government charges is the largest component followed by materials and wages.

Thank you James for this excellent, even handed article. You have summed things up very well. My two cent's worth on much needed tax reforms to dampen demand are....

(i) Place restrictions on Negative Gearing: Australia is out of step with most other countries in allowing interest expenses on investment housing to be offset against any other income (including salary and wages). As well as increasing demand for residential property, it results in other taxpayers subsidising those who negatively gear. As a first step, investors should be restricted to deductions on only one investment property or only new properties;

(ii) Halve the Capital Gains Tax (CGT) discount rate to 25% (or re-introduce the previous inflation adjusted CGT approach): The current 50% CGT discount rate is excessive and clearly encourages speculation in housing. It is well documented that the explosion in Australian house prices coincided with the introduction of the 50% CGT discount in 2000;

(iii) Remove the ability of Self Managed Superannuation Funds (SMSFs) to borrow to invest in housing: Typically, SMSFs buy houses at the lower end of the market in direct competition with first homebuyers, thereby inflating prices. Allowing SMSFs to borrow to do this was a measure that was introduced in 2007. After a slow start, this area of investment has exploded in recent years. Noted independent economist, Saul Eslake, has described it as the “one of the dumbest tax policy decisions of the past 25 years”. It should be reversed.

Btw, if anyone feels strongly about taxation reform please write to the Treasurer, Jim Chalmers, at [email protected] (and cc. your MP when you do). He needs to know first hand what Australians are thinking!

If house prices in major cities did not see average growth of at least 5% p.a. after tax (net of holding costs) over the life of the asset, why would anyone invest in one (beyond one for security of tenure), when there are much better options in the stock market and crypto. e.g,. Our conservatively invested Australian stocks, bonds & cash SMSF has yielded 9% p.a. growth over the long haul after fees and our higher risk US big tech investments have grown by double that rate after tax over the last 25 years, given the max long term CGT rate is 23.5% (45% + Medicare)/2.

One of the reasons people are so keen to buy is because the family home is seen as a safe CGT free form of wealth creation. If prices start to fall, people will be reluctant to buy and this includes first home buyers who want to see prices rise sharply AFTER they buy. Ironic, isn’t it?

One of the reasons young people aren't out on the streets is that a good percentage have parents who have property which they hope to inherit. Many of them don't want to see house prices stabilise or worse still fall. And there is no shortage of media which will support them in their belief that they are justified. Both major parties have to keep them on side. Which just leaves the Greens and the independents.

Interesting that the Minister wants house prices to continue to rise, but sustainably. Why do house prices need to continually rise, sure maybe keep up with inflation, but prices have vastly outstripped inflation. Supply and demand is only part of the drivers, at some point prices must reach a level that demand falls because buyers can’t afford the price, except we have banks that have been willing to expand the availability of credit that fuels affordability and therefore prices. Lower interest rates means more borrowing capacity that feeds higher prices.

The government can fix the housing crisis with the stroke of a pen.
Remove all taxes from building new developments which are specifically designed as Build to Rent or for first home buyers.

The tax of a new property is 40% of the build.

Developers can still make money and first home buyers or renters will benefit enormously.

Mandate minimum apartment or unit sizes of say 100sqm so that people are not living in shoe boxes and there is some dignity in the living spaces. The nuances can be worked out, but the simple answer:
Remove all government (state and federal and local) on new Build to Rent properties and developments for first home buyers.

Let's see if the government is serious about this issue now or not. I doubt anyone in the population will oppose this measure to help those in need.

If tax embedded in a new property is 40% of a price that is deemed unaffordable then removing that tax will also be deemed unaffordable by indebted governments that have already spent the money and will seek to recoup same by other means (more tax on more property?). Consider how difficult it is to remove stamp duty (only about 4-6% of the value of a property) without threatening land taxes on the family home.

Problem is though; how much of those extra dollars will just end up in the pockets of developers. Some developers I know have empty mansions sitting idle besides the canals of Noosa. So we have two extremes - homeless V many mansions not being rented or even being sold

Totally agree with you, 40% is just pure madness. All these taxes, fees, levies and so on, make real estate expensive and impossible for the youngest. Real estate affordability is getting closer to Victorian levels.

The near-religious focus on home ownership in Australia is a surprisingly recent phenomenon. Decades ago, it was normal—and not stigmatised—to rent or rely on well-managed public housing. The shift towards ownership as the default aspiration was largely driven by tax incentives and reinforced by persistent social messaging. It’s worth asking: is it time to create a new housing paradigm, one that doesn’t leave the next generation feeling excluded?

Other developed countries—many in Europe—offer good models, with robust tenant rights and public housing programs that deliver security and dignity without the pressure of ownership. Australia could benefit from a rethink along these lines, aiming for a system where affordable, stable housing is accessible to all, not just those who can buy in.
Countries in Europe (and a few globally) known for positive attitudes towards social/public housing and strong tenant rights include:

- Germany: Longstanding robust social housing sector, tenants have strong legal protections, and social housing is seen as a respectable, mainstream choice.
- Sweden: Extensive investment in social housing and rent control; renting is normalized and not heavily stigmatized.
- Denmark: Leader in housing protection and tenant involvement; large, well-managed social housing sector, little stigma attached to non-ownership.
- Finland: Pioneered the 'Housing First' model to end homelessness; public/social housing is built to high standards and is broadly accepted.
- Netherlands: Large percentage of social/public housing; strong tenant protections, housing is considered a social good.
- Austria: Balanced rental market, high share of rental and social/public housing, stable and affordable options for families and individuals.
- Norway: Inclusive policies ensure widespread housing access, not just ownership.
- Singapore (outside Europe): Nearly 80% of citizens live in public housing managed by the government, often seen as desirable and well-maintained.
- Canada and South Korea (also noted for positive public housing models globally, though not European).

These countries treat public renting and social housing as respected, secure, and often desirable options rather than fallback solutions, with public policy, legal norms, and social attitudes supporting this status.

Surprise surprise there’s a bunch of comments about how young people just need to give up the overseas holidays and cars etc. Which conveniently ignores the fact that in the 80s you could buy a house for 2.5 time earnings, which means that if you saved a quarter of your wage you would likely have enough for a 20% deposit within 2 to 3 years.

Nowadays home prices are 8-10 times median earnings, so if you save a quarter of your wage you would have enough for a deposit in 7 to 8 years.

I don’t think it’s the overseas holidays and new cars that are the main problem here.

"save a quarter of your wage you would have enough for a deposit in 7 to 8 years":

To become a mort-gage slave?

Save 80% of two AVERAGE after tax incomes for four years, buy home cash-on-the-knocker, go on to save 50% of after tax income thereafter.

Best of luck with saving 80% of your after tax income!

"Best of luck with saving 80% of your after tax income!":

Luck needed was, is, and will be, good economic and personal health.
Beyond luck, spending no more than 20% automatically results in saving 80%.

There is a clear (inverse) relationship between official interest rates and the multiples required to purchase a home which is another way of saying that the elevated multiples are a DIRECT consequence of the loose monetary policies that governments have been subscribing to in part because they could not live withing their means and need to borrow the shortfall. Do you really think that the multiples would be anywhere near 8-10 times earnings if interest rates had stayed at the 13-17% that they were in the 80s? Add to that loose immigration policies and woilla a housing crisis is almost guaranteed.

I don't think that the inverse relationship is particularly strong, and there is certainly a difference in magnitude between the changes in interest rates and multiples required to purchase a home. Look at the last 5 years where we saw mortgage rates go to 2% and house prices sky rocketed, then rose back to 6% and house prices barely budged.

If you took out a mortgage at a 2% interest rate and then had it rise to 6% then your repayments have gone up by roughly 50%. House prices didn't change much, and I'm not aware of too many people who received 50% pay rises to keep that multiple steady, let alone have it go down.

I do agree with you though that house prices would not be at 8-10 times earnings if we had 13-17% mortgage rates as was the case through some of the 80s. I don't think anyone is forecasting though that we are going back to that environment.

Many factors affect overall median property prices.
One being:
https://api.macrobusiness.com.au/wp-content/uploads/2024/03/Australian-population-change-1.png

Need multivariant analysis to estimate effect of each factor. Many have tried.

Supply. Of homes and of cash.

Young don't have enough cash to buy a home in an under supplied market.

The number of occupants per home has been decreasing for decades.
Home supply would improve if young shared homes more.

Cash supply would improve if young SAVED more and mort-gaged less.

Young could lean on the old a bit through 'Bunk of Dad&Mum' agreements yet be made to stand on their own feet by not being offered handouts from 'Bank of Mum&Dad'.

For many the Bank of Mum and Dad could result in Mum and Dad trying to live without the centrelink pension

"For many the Bank of Mum and Dad could result in Mum and Dad trying to live without the centrelink pension":

Yes. Board and lodging or similar arrangements, no effect, rent reportable.

'Payments for board and lodging are generally considered domestic arrangements, not income, for social security purposes, unless it is a "rent assistance" arrangement where the payment is primarily for the use of property, in which case it must be reported.'

If a pension payment is based on the asset limit, I think that the gifting rule is that the limit is $10000 in a single year and a maximum of $30000 over 5 years without penalising pension payments.
Be prepared for a drop in pension payments if this limit is exceeded.

Was thinking more re the issue of centrelink's deprivation rules around not giving a gift more than $10K. If a gift is made of that magnitude then the elderly couple cannot get the aged pension.

"issue of centrelink's deprivation rules around not giving a gift more than $10K":

Quite right.

'Bank of Mum&Dad' giving cash for a home purchase would reduce or eliminate pensions for 5? years.

'Bunk of Dad&Mum' giving board and lodging to offspring and offspring directly paying for food and utilities would have no effect on pensions, whereas charging rent is likely to.

Like having guests who directly pay for costs but do not pay rent.

In the 1990's young people either bought a home, had an overseas holiday or bought an expensive car. These days they want it all, and everyone else to pay for it. And 20% cut to HECS debt.
If you don't want crazy house prices, move to a regional centre.
I'm happy with the family home being included in a revised age pension assets test, and changes to negative gearing and capital gains tax.
That can have solutions impacting on a broad section of the community.
The generational tension may be more with youngish people who've recently bought who don't want to see the value of their home fall, and older Gen Y and Gen X who'll be inheriting the value of higher properties. State Governments collecting stamp duty may be part of the equation aswell.

Government needs to have the courage to finish the tax reform started in 2000.
increase the GST to 15% on everything, abolish state-based stamp duty, and the Big One, change the Progressive Marginal Tax Rates and INDEX them to CPI (Abolishing Bracket Creep) - This will equalise the tax revenue base, ie Retirees and criminals will at least pay 15% on what they consume, young people will have more income in their pockets week by week, enabling them to purchase houses, the economy will grow. I read an article that said that bracket creep has cost the average wage earner more each month than the combined cost of the 12-13 consecutive interest rate rises did... Just need one political party to have the stones to finish the job.

Great article and as someone who sits between the generations can see both points of view. Older generations do not want following generations to be worse off than them, but equally, they want the younger generations to earn their wealth and not be 'entitled' to it (& ignoring the fact of massive asset appreciation). Possible solutions;
- Make it easier for first home buyers to save a deposit - the first home savers scheme is excessively complex.
- Allow a level of tax deductibility for interest payments on mortgages for first home buyers or people under a certain age.
- Active policies to limit house price appreciation - increased land tax on multiple properties, caps on amount of interest deduction claimable etc
- Focus on skilled migration that targets Trades,
- Reduce red tape to bring costs down and allow things to happen.
- As per Peter's comments - tax reform

"Make it easier for first home buyers to save a deposit":

That would make more mort-gages available to more.
Not a solution.

Make it easier for first home buyers to save a cash-on-the-knocker amount in a few years.

That is the point Dudley. And surely people having significant equity is better than significant debt. Dave

"having significant equity is better than significant debt":

Having 100% equity plus a float mostly is.

Some prefer more risk: a home mort-gage plus non-home investments. Chance a wipe out for prospect of big gains.

Option 3
Get off your backside and save some money and don't expect someone else to pay your way. As a boomer I prioritized home ownership and worked two jobs, no restaurants no expensive holidays, no concerts etc. It can still be done.
Don't vote labor who have increased immigration and are now looking at negative gearing. That is the only help for young people which has very little help for older people who are usually positively geared.

If we follow option 3 we'll end up like you, huh? Option 2 is looking much more attractive...

When it comes to age-appropriate housing and aged care — areas that have long been underfunded, heavily restricted, and in need of significant investment to meet future demand — I imagine you’ll similarly advocate for personal responsibility, without expecting others to shoulder the cost.

In fact, I agree with your general principle. However, I believe the housing affordability challenges younger people face today may soon be mirrored by older Australians as aged care pressures grow. I wouldn’t be surprised if their response to that situation reflects the same attitude you’ve expressed — which, in that case, would be entirely consistent.

All governments have been lazy with housing. I grew up in public housing and they are just not being built for the three past decade. We need four changes. 1. Reduce negative gearing to one property. 2. Remove CGT discount on property. 3. Allow Super funds to invest in local property market. 4. Change regulations to allow for more pre-fab housing. 70% of housing in Northern Europe is pre-fab. Faster and cheaper.
There are plenty of options, we just need a braver government to make the changes.

Release more land, cut regulations, abolish stamp duty, cut immigration levels - how about starting with that! How about the Minister and the government behave like serious people - rather than waffling virtue signallers - and genuinely commit to reforming housing supply by implementing the steps I mention above.

The youth vote for Greens and ALP who all support mass immigration and high house prices (supply and demand), so they own this result themselves.

To be accurate this has been both Labor AND Coalition policy for decades. Not one side or the other

Boomer here. Alternative 1: policy change, reform of the tax system. All it takes is courage.