Taking the Stage – Generation Left
Something really strange is going on right now.
Household wealth is skyrocketing during our first recession in three decades and (let’s hope) a once in a lifetime pandemic.
The main reason – housing.
Rising house prices have driven big increases in household wealth. What’s that? Well, household wealth is the difference between the total value of assets owned by households and how much debt they owe.
Or in real terms, we’ve seen this figure jump by $2.4 trillion or 22% since the pandemic began, reaching a record $13.4 trillion, according to figures from the Australian Bureau of Statistics.
Much of this increase has been driven by rapidly rising house prices, which have lifted the total value of residential properties owned by Australians by $1.6 trillion.
While the amount households owe on their mortgages has also increased, this increase has been much smaller and nowhere near enough to offset the benefits from higher house prices.
The value of other assets has increased too – super balances jumped nearly $600 billion since March 2020.
While the rapid rise in wealth is good news and it’s certainly reduced the overall economic hit, it’s not great for everyone – namely young people.
Many young people not yet on the property ladder are seeing their dreams of home ownership slip away with every steep price rise.
You might be surprised to know a third of Australians rent, not own. And of course, these people haven’t benefited from rising house prices – in fact, rising house prices mean this cohort now faces even greater barriers to enter the market.
Renters are typically younger than homeowners with two-thirds of households aged under 35 renting, while just one-sixth of those aged over 55 rent.
Much of the gain in net wealth that has occurred since the pandemic began has gone to older households.
Households past retirement age (65 and older) have seen their housing assets surge by $450 billion. Meanwhile, because of their lower home ownership rate, younger households (those under 35) have seen a much smaller increase of $136 billion. Households aged 45-54 have seen the largest increase, in part because there are simply more of these households than any other age group (and they have relatively high homeownership rates).
This diversity in price outcomes means that, if anything, older homeowners have seen even faster house price growth than younger ones. All other things being equal, this means the gap in wealth accumulation over the pandemic between younger and older households is probably larger than our earlier estimates.
There’s another thing that’s rocked young people – job losses.
For many younger workers, the pandemic has been a double hit – not only have they missed out on the increase in housing wealth, they’ve also borne the brunt of job losses.
When the pandemic first hit, job losses were recorded across all age groups, but those under 35 were hit the hardest. The share of the under 35 population that were employed fell from 71.7% in March 2020 to 64.2% in May 2020.
So what’s next?
Younger workers have benefited from strong labour market conditions during the recovery earlier this year. By mid-2021 a higher share of younger workers was employed than was the case pre-crisis. But with Sydney (and later Melbourne) returning to lockdown, job losses have again disproportionately fallen on these workers.
Overall, Australia’s economy has been surprisingly strong throughout COVID and has outperformed most other countries. The surging home values have been a factor in keeping people spending and businesses hiring. And this strength has happened despite one of our major capitals spending more time in lockdown than any other city globally.
But the gap in wealth is concerning. The generational gap in home ownership is hugely concerning. It’s now more than ever we need measures to help boost home ownership for young people. Without them, what future do we have?