Baby Boomers and Housing Markets. Presentation by Clare Wall, SGS Associate 7 th National Housing Conference October 2012

Transcription

1 Baby Boomers and Housing Markets Presentation by Clare Wall, SGS Associate 7 th National Housing Conference October 2012

2 This report has been prepared on behalf of 7th National Housing Conference. SGS Economics and Planning and its associated consultants are not liable to any person or entity for any damage or loss that has occurred, or may occur, in relation to that person or entity taking or not taking action in respect of any representation, statement, opinion or advice referred to herein. SGS Economics and Planning Pty Ltd ACN Offices in Brisbane, Canberra, Hobart, Melbourne, Sydney

3 TABLE OF CONTENTS BABY BOOMERS AND HOUSING MARKETS 1 1 WHO ARE THE BABY BOOMERS? 2 2 POPULATION PROFILE 3 3 INCOME 6 4 HOUSEHOLD COMPOSITION 7 5 HOME OWNERS AND PURCHASERS 8 6 HOUSEHOLD WEALTH AND WEALTH DISTRIBUTION 9 7 WHAT MIGHT BE THE INTERGENERATIONAL IMPLICATIONS OF THE CURRENT DISTRIBUTION OF INCOME AND WEALTH? 10 8 EXPENDITURE 11 9 WHAT DOES THE LITERATURE TELL US? INCREASING PRODUCTIVITY WHERE DO THE BABY BOOMERS LIVE? WHERE ARE COUPLE HOUSEHOLDS WITH DEPENDENT CHILDREN LOCATED? GENERAL CONCLUSIONS AND IMPLICATIONS REFERENCES 26 Baby Boomers and Housing Markets

4 TABLE OF FIGURES Table 1: Australian Population as at Table 2: Australian Population as at Table 3: Australian Population as at Table 4: Mean Household Income by Age... 6 Table 5: Household Composition by Age... 7 Table 6: Home Owners and Purchasers by Age... 8 Table 7: Mean Household Wealth by Age... 9 Table 8: Mean Weekly Household Expenditure by Age Map 1 Sydney Baby Boomers Map 2 Melbourne Baby Boomers Map 3 Brisbane Baby Boomers Map 4 Canberra Baby Boomers Map 5 Sydney Couples with Dependent Children Map 6 Melbourne Couples with Dependent Children Map 7 Brisbane Couples with Dependent Children Map 8 Canberra Couples with Dependent Children Baby Boomers and Housing Markets

5 BABY BOOMERS AND HOUSING MARKETS Information from the 2011 Census and from other recent sources suggests that the baby boomer generation may have generally fared better than other generations in Australian housing markets. This paper covers: the profile and circumstances of the baby boomers vis- à- vis other generations; potential scenarios around inter- generational transfers of assets and wealth; and implications for housing markets and productivity.

6 1 WHO ARE THE BABY BOOMERS? In its analysis of the role and impact of different generations, the Australian Bureau of Statistics (ABS) has identified the baby boomer generation as those born in the years between 1946 and 1966, following the end of the Second World War. i At the time of the 2011 Census, the baby boomers fell within the two age brackets of and References in this paper to baby boomers generally refers to people within these age brackets. Much of the information presented in this paper refers to the mean (average) for each age group. In each age group there are likely to be many households whose circumstances are quite different from the mean. The analysis does not separately identify the circumstances of Indigenous people, whose income, wealth and life expectancy is generally quite different from other Australians. Much of the ABS household information that is used in this paper, is also based on the age of the reference person identified for each household. Other adults living in the same household may be in different age groups.

7 2 POPULATION PROFILE The proportion of the Australian population in the age group 45 to 64 years has increased over the last hundred years, reflecting increased life spans, and other demographic changes. TABLE 1: AUSTRALIAN POPULATION AS AT 1911 Source: ABS ii The end of World War II, the perceived need to populate or perish and the influx of people from many parts of Europe, led to a significant increase in Australia s population, and to the generation known as the baby boomers - those born between 1946 and The impact of this population increase is shown in the population census of 1971.

8 TABLE 2: AUSTRALIAN POPULATION AS AT 1971 Source: ABS iii By 2011, Australia s population profile, rather than appearing as a pyramid, with generally consistent increases occurring over time, has a bulge representing the baby boomer generation and the offspring of the baby boomers. TABLE 3: AUSTRALIAN POPULATION AS AT 2011 Source: ABS iv

9 In a democracy where each person has an equal vote, the numbers of people in the baby boomer and baby boomer echo generations clearly have a significant political impact. The following sections present information on the income, housing circumstances and assets of the baby boomer generation, relative to the population as a whole.

10 3 INCOME The ABS Survey of Income and Housing identified a mean income of $1,688 across all households. Broken down by age v, the highest mean income was for those households in the age bracket ($2174), with the age bracket earning a mean household income of $1,660. TABLE 4: MEAN HOUSEHOLD INCOME BY AGE $2,500 $2,000 $1,500 Mean Household Income $1,000 $500 Mean Household Income $0 Source: ABS vi

11 4 HOUSEHOLD COMPOSITION The high mean household income for the age group, is partly attributable to the number of income earners per household. As is shown in the Table below, households in the year age bracket included an average of 1.9 income earners per household, compared with 1.3 for households in the age bracket and 1.3 for all households. The mean number of dependent children across all households is 0.6. The mean highest number of dependent children is 1.4 for households in the age group, followed by 0.8 for households in the age group. For the age group years, the mean number of dependent children falls to 0.2 per household. TABLE 5: HOUSEHOLD COMPOSITION BY AGE Mean No. of Adults not earning income Mean No. of Dependent Children Mean No. of Income Earners Source: ABS vii

12 5 HOME OWNERS AND PURCHASERS Baby boomer households have a generally high rate of home ownership, although not quite as high as for households in the 65+ age group. Of households in the age group 23.9% were home owners without a mortgage, and 52.3 % were purchasing their home, giving a combined total of 76.2%. Of households in the age bracket, 50.3% were outright owners and 31.4% were purchasers with a mortgage, giving a total of 81.7%. For all households, the combined total of outright owners and home purchasers was 68.8%. TABLE 6: HOME OWNERS AND PURCHASERS BY AGE Home buyers Home owners (outright) Source: ABS viii

13 6 HOUSEHOLD WEALTH AND WEALTH DISTRIBUTION Between June 2001 and June 2011, Australia s real national wealth rose from $347,800 per person to $373,100 per person. ix It would generally be expected that older households would have had the capacity to acquire more assets and wealth, than younger households. The distribution of mean net value of owner occupied housing (value of the property less mortgage outstanding), mean net value of other property, and total financial assets is shown in the table below. x This table clearly shows the relative affluence of the baby boomer generation, particularly those in the age group. Households in the age group have the highest mean net value of owner occupied property at $448,100 and for all property at $572,500. Net wealth in property other than owner- occupied housing is highest for the baby boomer age groups a mean of $169,000 for households in the age group and $137,800 for those in the age group. This property would include private rental properties and holiday homes, as well as some commercial property. Households in the baby boomer generation also have the highest wealth in financial assets, including a mean of $230,800 in superannuation for those in the age group and $135,700 in superannuation for those in the age group. TABLE 7: MEAN HOUSEHOLD WEALTH BY AGE Mean Net Value other property ($'000) Mean Net Value Owner Occupied Housing ($'000) Mean Financial Assets ($'000) Source: ABS xi

14 7 WHAT MIGHT BE THE INTERGENERATIONAL IMPLICATIONS OF THE CURRENT DISTRIBUTION OF INCOME AND WEALTH? As has been shown above, the average baby boomer household is generally faring quite well compared to other households. In the next few decades the baby boomers will increasingly retire, move to aged persons accommodation and die. The decisions made by baby boomers about the way they use their income and wealth will have implications for housing markets, and for younger generations, for example, they may: spend their kids inheritance and use up all their own assets to fund their retirement, including retirement village/nursing home accommodation; live off their superannuation or pension and bequeath their current housing assets to their children or grandchildren; and/or use their housing- related wealth to assist their children and grandchildren into home ownership while they are still alive. These decisions will, of course, take into account government assistance arrangements and taxation policies, which may change over time.

15 8 EXPENDITURE What do we know about the current expenditure patterns of the baby boomers? As shown in the table below, the mean weekly expenditure of the baby boomer households currently substantially exceeds that of households in the 65+ age group. Mean weekly expenditure on goods and services is $1,502 for households in the age group, $1,204, for households in the age group and $726 for households aged 65+ years. The differences may be partly explained by a reduction in the number of people per household from a mean of 3.0 for the age group, to 2.2 for the age group and 1.7 for the 65+ age group (see Table 5). On a per person basis, households in the age group are currently spending an average of $500 per week on goods and services, households in the age group are spending $547 per week and households in the 65+ age group are spending $427 per week. If housing costs are excluded, per capita expenditure is reduced to $425 per week for the age group, $474 per week for the age group and $377 for the 65+ age group. The baby boomers are thus currently spending around $70 more per person per week on non- housing goods and services than those in the 65+ age group. Per capita expenditure on transport is $80 per person per week for those in the age group, $96 per person per week for those in the age group and $38 per week for those in the 65+age group. The reduction in transport expenditure by the 65+ age group may partly reflect a reduction in workforce participation and journeys to work. The table below also shows that the baby boomers are currently paying more income tax and allocating more of their income to superannuation and life insurance than the 65+ age group. Whether the baby boomers will reduce their expenditure as they age to reflect the current expenditure patterns of the 65+ age group, will impact on the value of their estate when they die, and on their ability to provide financial assistance to their children or grandchildren.

16 TABLE 8: MEAN WEEKLY HOUSEHOLD EXPENDITURE BY AGE $2,500 $2,000 $1,500 $1,000 Expenditure on superannuapon & life insurance Mean Mortage Repayments - Principal Mean Income Tax $500 $0 Mean expenditure on other goods & services Mean expenditure on current housing costs Source: ABS xii

17 9 WHAT DOES THE LITERATURE TELL US? The Henry Tax review quotes research suggests that the proportion of all household wealth held by older Australians is projected to increase from 22 per cent to 47 per cent between 2003 and xiii This is estimated to lead to an increase in real terms of bequests passed on from $22 billion in 2010 to $85 billion in This amounts to a projected increase from around 2 per cent of GDP to 4 per cent of GDP. xiv These bequests are likely to provide significant benefits to the recipients. There is the potential for a bequest tax, which even if only set at a low rate for large bequests would provide a source of funds that could be used to assist households that do not benefit from this intergenerational transfer of wealth. However, there is also likely to be political sensitivity associated with the implementation of any form of a bequest tax. In a survey of people aged 55 years and over, undertaken as part of the AHURI research project 21 st century housing careers and Australia s housing future, xv 20 per cent of respondents indicated that they had provided their children with financial assistance to enter the home purchase market. In the AHURI Research Report Ageing in Place xvi, Dr Diana Olsberg and Mark Winters found that one third of the older people surveyed had already assisted children financially, but mostly through loans rather than gifts. Almost half of the respondents to the same survey expected that their savings, superannuation and medical insurance would be enough to meet all their future needs, although this was far less likely for women than for men. One third of the baby boomers in the survey expected to have used up all their assets before they died. However, in its report Australia to 2050: future challenges ( The Intergenerational Report 2010 ) xvii, the Australian Government identified significant future cost increases associated with the ageing of the population, particularly in the areas of health, aged care and pensions. It is likely that those members of the baby boomer generation with the financial capacity to fund their own retirement costs, will increasingly be required to do so, leaving less scope for them to provide direct financial assistance to their children or grandchildren. Assistance provided by parents to first home buyers isn t just being provided as cash or loans. The RAMS First Home Buyers Pulse Check Survey 2012 revealed that one quarter of prospective first home buyers were currently living with parents or other family members to save money for their first home, and 55 per cent were likely to do so. Other family support to first home buyers was also being provided through loan guarantees.. xviii

18 10 INCREASING PRODUCTIVITY In its Intergenerational Report 2010, the Australian Government identified the need to increase productivity as one of the key ways to fund increased expenditure associated with the ageing of the population. The development of cities is identified as central to improving productivity performance. Much of a city s capacity to accommodate population increases while supporting productivity growth is reliant on the efficacy and adequacy of its infrastructure, including its housing stock. xix A recent report prepared by John Daley of the Grattan Institute xx identified ways to best increase overall productivity in the Australian economy, specifically through: reform of taxation arrangements; and measures to increase the participation of females and older people in the workforce. In addressing incentives for the greater participation of women in the workforce, the Grattan Institute focussed on effective marginal tax rates that is the proportion of each additional dollar earned that translated into additional discretionary income for women and their families. The Grattan Institute s analysis of women s workforce participation took into account the impact of income tax, and the withdrawal of family tax benefit and child care rebates as income increased. The analysis showed that the actual benefit accruing to women in couple households on an annual income of between $40,000 and $150,000 for working beyond 3 days per week was between 10% and 52% of their gross income for the additional days worked. Furthermore, this analysis did not take into account costs other than childcare costs that might be associated with workforce participation. If the costs associated with transport to work were added, it would be clear that the financial rewards for many women to work beyond 3 days per week would be minimal at best and sometimes even negative. In discussing measures to increase the workforce participation of older people, the Grattan Institute identified as key factors the age at which people can access the age pension, and the age at which people can access their superannuation ( the preservation age ). Many workers currently retire before the age of 65 and live on superannuation and savings until they reach the Age Pension qualifying age of 65. After the age of 55, their savings can be supplemented by access to superannuation that has accrued with the help of taxation concessions The Henry Tax Review estimated that approx. a third of superannuation savings are currently being withdrawn before the recipient reaches 65 years of age. In 2009 the Commonwealth Government announced the phasing in of an increase in the pension age to 67 and the preservation age to 60, to encourage people to stay longer in the workforce. The Grattan Report suggested that increasing both the age pension age and the preservation age to 70 would increase overall economic growth by around $25 billion per annum. While baby boomers may be staying in the paid workforce for longer than many previous generations xxi, there is still some way to go if the potential productivity increases identified in the Grattan Institute Report are to be achieved. As noted above, the Grattan Institute s analysis of workforce participation incentives and disincentives, did not specifically measure the additional impediments associated with the time and costs associated with journeys to work.

19 11 WHERE DO THE BABY BOOMERS LIVE? Unfortunately specific 2011 Census information on journeys to work was not released in time for inclusion in this paper, but the first release of 2011 Census data did include information on place of residence by household age and composition. The following maps showing locations where the baby boomers are concentrated in some of our major cities and in surrounding areas.

20 MAP 1 SYDNEY BABY BOOMERS

21 MAP 2 MELBOURNE BABY BOOMERS

22 MAP 3 BRISBANE BABY BOOMERS

23 MAP 4 CANBERRA BABY BOOMERS What is clear from the 2011 Census information is that the baby boomers are generally making up a higher proportion of households in the regions surrounding these cities as well as being concentrated in particular suburbs (often the affluent suburbs) of these cities. More fine- grained information, as well as analysis of the journey to work data from the 2011 Census, will assist in identifying the extent to which the time or cost of travelling to work is likely to be a particular impediment to workforce participation by the baby boomers. The information presented in these maps does not, however, generally support the view that baby boomers are over- represented in the suburbs and areas close to the city centre where jobs are concentrated, thus forcing younger households to live further out.

24 12 WHERE ARE COUPLE HOUSEHOLDS WITH DEPENDENT CHILDREN LOCATED? While the focus of this paper is on the role of baby boomers in housing markets, it was included in the National Housing Conference Agenda as part of a session on The Efficient Use of Housing as part of the broad Housing and Productivity stream. As identified in John Daley s Grattan Institute Report, a key way to increase productivity in the Australian economy would be to increase the workforce involvement of women in couple households with dependent children. This paper thus includes some additional information on couple households with dependent children. As noted above, the financial incentives for many women with dependent children to work more than 3 days per week is often minimal, even before the time and cost of travel to work is taken into account. Additional impediments associated with journey- to- work time and costs will depend to some extent on where the households live in relation to jobs. The areas of some of our major cities where couple households with dependent children are concentrated are shown in the following maps, which use information from the 2011 Census. (Note: the scales used to demonstrate concentrations of couple households with dependent children in Maps 5 to 8 below are not the same as those used to demonstrate concentrations of baby boomers in Maps 1 to 4 above.)

25 MAP 5 SYDNEY COUPLES WITH DEPENDENT CHILDREN

26 MAP 6 MELBOURNE COUPLES WITH DEPENDENT CHILDREN

27 MAP 7 BRISBANE COUPLES WITH DEPENDENT CHILDREN

28 MAP 8 CANBERRA COUPLES WITH DEPENDENT CHILDREN Maps 5 to 8 show that in each of Sydney, Melbourne, Brisbane and Canberra there are areas where couple households with dependent children make up more than 45 per cent of all households. The areas identified are all some distance from the centre of these cities, where jobs are concentrated. Of additional interest is that areas where the proportion of couples with dependent children make up 30-45% of all households are relatively evenly spread across Sydney and Brisbane. In Melbourne, the areas where couple households with dependent children make up 30-45% of all households are less likely to be located near the city centre. Further analysis of journey to work information from the 2011 Census may provide additional insight, but from the information presented above, it is likely that costs associated with travelling to work are likely to present a further significant impediment to increased workforce participation for many women in couple households with dependent children. Alternatively, the data suggests that if second income earners (generally women) in these couple households wish to reduce the time and costs taken to travel to work, their workforce opportunities are likely to be restricted.

29 13 GENERAL CONCLUSIONS AND IMPLICATIONS The information presented shows that on average, baby boomer households in Australia are relatively well off in terms of income, wealth and housing compared with households in other age cohorts. With research also suggesting that bequests will increase in real terms from $22 billion a year in 2010 to $85 billion a year by 2030, intergenerational wealth transfer is likely to have a significant impact on the wealth and housing circumstances of the recipients. Many baby boomer households who are able to do so are providing support to help their children and grandchildren into home ownership. This help is being provided through direct financial assistance, loans and loan guarantees. Many potential first home buyers are also living longer with their parents or moving back in with their parents while they save for a deposit. Baby boomers may also assist by providing free childcare for their grandchildren. The location of the baby boomer parents home may therefore impact not only on their access to employment, but also on the employment opportunities accessible to their adult children and/or on their ability to save a deposit for home purchase. Potential home buyers who are not able to access help from parents or bequests from family members will have to compete in housing markets against others who have may have received substantial assistance. For households who do not receive support from their families, it is likely to be very difficult to purchase a home near good job opportunities. While workforce participation of the age group has increased in recent years, productivity in the Australian economy will need to increase further to meet costs associated with the ageing of the population. Increased workforce involvement of key target groups older people and women with dependent children is unlikely to be achieved if journey to work costs for these groups are significant. Information from the 2011 Census shows that many baby boomers are living in the areas surrounding major cities, and that they are not over- represented in the suburbs and areas close to the city centre where jobs are concentrated. The 2011 Census information also shows that there are some parts of our major cities where couple households with dependent children make up more than 45 per cent of all households. These areas were all some distance from the centre of these cities. It is likely that for women in these households, the costs associated with travelling to work would be a significant additional impediment to their increased workforce participation.

30 14 REFERENCES i ABS Cat. No Reflecting a Nation: Stories from the 2011 Census, Released 21/06/2012. ii ABS Cat. No Reflecting a Nation: Stories from the 2011 Census, Released 21/06/2012. iii ABS Cat. No Reflecting a Nation: Stories from the 2011 Census, Released 21 June iv ABS Cat. No Reflecting a Nation: Stories from the 2011 Census, Released 21 June v ABS Cat. No Household Income and Income Distribution , Released 30 August 2011 vi ABS Cat No Household Income and Income Distribution Released 30 August 2011 vii ABS Cat No Household Income and Income Distribution Released 30 August 2011 viii ABS Cat No Household Income and Income Distribution Released 30 August 2011 ix ABS Cat. No Measures of Australia s Progress: Summary Indicators, x ABS Cat. No Household Wealth and Wealth Distribution , Released 14 October xi ABS Cat. No Household Wealth and Wealth Distribution , Released 14 October xii ABS Cat. No Household Expenditure Survey , Released 6 September xiii Kelly & Harding (2003), referenced in Australia s Future Tax System Final Report, Chapter A. xiv Australia s Future Tax System,Final Report Section A3. xv Andrew Beer and Debbie Faulkner, 21 st century housing careers and Australia s housing future, AHURI Final Report Number 128., p 141. xvi Dr Diana Olsberg & Mark Winters. AHURI Final Report No. 88 Ageing in Place: Intergenerational and interfamilial housing transfers and shifts in later life, October 2005, pages viii and x. xvii Australia to 2050: future challenges, the Hon. Wayne Swan MP, January 2010, accessed from the website 22 October xviii Accessed on 22 October Media Release Parents fast track their kids into homes, 18 September 2012 xix Australia to 2050: future challenges, the Hon. Wayne Swan MP, January 2010, page xv, accessed from the website 22 October xx John Daley, Grattan Institute, Game Changers: Economic reform priorities for Australia 2012, accessed from the website 22 October xxi Australia to 2050: future challenges, the Hon. Wayne Swan MP, January 2010, page xiv, accessed from the website 22 October 2012.

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