For Millennials – owning a home is a dream too far
There are many good reasons to complain about taxes, but I once heard a most ridiculous protest. It came from a homeowner in the United States, where property taxes are the major source of funding for schools. As this individual didn’t have children, he felt he deserved an exemption from the burden.
“Are you nuts?” I asked the guy. “What do you think that house of yours would be worth in the future, if others weren’t having kids? If anything, the childless should be taxed double.”
Perhaps I was a bit over-krank. But economic growth is ultimately based on a simple formula: population growth + productivity increases. The global baby boom that occurred after World War II was a huge boost to growth; it was also very kind to property prices.
Many middle-class retirees – in Britain, the US, China, Australia, etc. – are sitting on gold mines because the homes they bought years ago have appreciated so much over time.
But what if this turns out to be a phenomenon confined to the late 20th century/early 21st century? Young families scrabbling together down payments to buy their first homes – will they also be sitting on gold mines 40 years later?
As it is, they already have it much tougher in the here and now. Polls show that few expect the so-called Millennial generation to enjoy the same opportunities as their parent and grandparents’ generations did. Many of them are still living with their parents, because they can't afford to move out.
According to BoA Merrill Lynch, 55 per cent of Americans 18-24 years old are still at home – as are nearly 1/5th of those who are 25 to 34. In Europe, 48 per cent of 18-29 year olds are living with their parents.
Across the BRIC countries, 56-60 per cent of Millennials live with immediate family, with China the highest at 60 per cent.
Pessimists have noted that young adults in countries such as America are less likely to have a car than previous generations, are more likely to want to live in the city than a suburb, and are loaded down with school debt, which makes it harder to juggle a mortgage.
That said, when polled, a majority of young adults say it is important to eventually own a house. According to The Demand Institute, a consumer research group, Americans who are 18 to 29 years old are expected to form an estimated 8.3 million new households in the US from 2014 to 2018. This will infuse US$2.3 trillion in fresh funds into the US housing and rental market, the majority of it (US$1.6 trillion) for home purchases.
“Despite all of the doom-and-gloom reports about their financial situation, Millennials themselves are overwhelmingly optimistic about the future. They expect their finances to improve, and most have plans to move in the next five years,” the Demand Institute wrote.
Well, good for them. Optimism is crucial. But it’s no guarantee. Just because owning a house worked out so well for their parents doesn’t mean it will be the same for them.
A UK census survey showed that in England and Wales, 76 per cent of those aged 65-74 owned their own homes - the highest across all age groups. The proportion of owner-occupiers among those aged 25 to 34 declined from 58 per cent in 2001 to 40 per cent in 2011.
In the US, household formations of married couples have been declining since the 1980s, and more than a quarter of US owner-occupied homes are in the hands of the elderly. This latter proportion will grow as the number of people over the age of 60 are expected to increase by 40 per cent from 2010-20.
In other words, soon a large proportion of housing stock will be occupied by ageing baby boomers. And let's be straight: eventually they will die. Just like there was once a baby boom, soon we’ll have a burial boom.
Who will move into their houses? In a world of graying demographics and eerily empty playgrounds, the pipeline is not looking overly promising.
In some countries, the answer will be immigrants. But overall, it is possible that owning a house may not be the best way to build a Millennial nest egg.