Generation Less: Millennials worse off than their parents

By Van Badham, Freelance Journalist

12/6/2017

In 1982, the median Australian house price equated to about three times the average household income. By 2003, housing cost six times the average household income. By 2012, it was seven times.

What's the impact? Fifteen years ago, the majority of people in their late 20s and early thirties were living in properties they were paying a mortgage on - but by 2012, the numbers had dropped to less than 40%.

These are the bleak figures cited by Jennifer Rayner in her book Generation Less: How Australia is Cheating The Young. Written last year, the book is premised on a grim reality - that today's young Australians "are becoming the first generation since the Great Depression to be worse off than their parents."

To describe this as a disappointing state of affairs is no small understatement. Those of my generation and the ones that immediately followed it were raised with somewhat greater expectations.

Labor's Whitlam revolution of free university education threw open the institutional doors of social mobility and vocational choice that were unimaginable to my parents' generation. Even if free education did not survive the Hawke-Keating Labor government - who introduced HECS in 1989 - the enormous expansion of the tertiary education and vocational training sector under that government suggested the democratisation of professional opportunity. With the same government's introduction of the award-wage system within the Accord guaranteeing pay standards, and the introduction of "social wages" through the creation of Medicare and the establishment of the superannuation system, the potential for a shared, increasing Australian prosperity seemed limitless.

Alas, we're seeing the limits of it now. And while certainly the reforms of the 1980s and 1990s did usher in a transformation of Australian living standards, the unforeseen consequences of those decisions dovetailed into the conservative neoliberal agenda of the Howard government era, which structuralised disproportionate advantages to the wealthy. The promise of equity and social democracy was replaced with something far more generationally lopsided.

This is very clear in the housing market.

The Reserve Bank of Australia has identified numerous factors to explain the rise in the price-to-income ratio from the 80s to 00s that is having such a restrictive effect on the young. The deregulation of financial markets under Hawke-Keating meant that banks could suddenly lend more money to more people. Simultaneously, inflation dropped, which meant that interest rates went down considerably. The result was that money became easier to get and was less daunting to pursue, which meant that sellers were in a position to demand more of it. Because people consider buying a house to be more important than their other purchases or spending, households often extend themselves beyond what they can comfortably afford to what is possible for them to afford. It's a tendency that encourages sellers to, again, demand more.

Obviously, those with more money have more power in these circumstances - and an older generation that has had time to accumulate more wealth is at a greater advantage when it comes to investing it. The Reserve Bank also identifies that changes to the capital gains tax system in the 1990s made "dwellings more attractive to investors". The much talked-about "negative gearing" mechanism also increased the appeal of investing in property. Negative gearing allows people who make a loss on a property they own as an asset to offset this loss from their taxable income; the idea is to encourage investors to add to the housing supply. But negative gearing is a tax advantage that can be realised on houses that already exist. We are one of the only countries on earth that allows negative gearing to offset assets and income that are not derived from other property.

A tax system that helps property owners

With the value of property increasing due to other market forces, investors have been able to minimise their tax while the houses they own grow and grow in value. It's created a perverse incentive for some to restrict housing supply, by keeping properties empty. The federal government insists that in high-demand cities like Sydney and Melbourne there just aren't enough properties to live in - but think-tank Prosper - who are campaigning for land taxes - found eighty thousand properties in Melbourne which are currently unoccupied. They have also identified there are more than ten separate tax advantages encouraging investors to keep properties empty.

https://www.prosper.org.au/2013/08/27/20-advantages-investors-have/

For young people, economic opportunities are further restricted by the increased level of debt that they take on in pursuit of tertiary education. The HECS system may have begun with flat fees, but they didn't stay there; the Howard government massively increased the HECS burden. The original rationale of HECS was that as an individual reaped an economic reward for obtaining professional qualifications, they were obliged to repay it back to the society that sponsored it. But the HECS repayment threshold has been lowered to just barely above the rate of annual minimum wage, and cuts deeply into the income of those who are clearly not reaping a discernible economic reward.

The job market has also changed; while property prices have increased, wage growth has remained stagnant for years. Also, jobs are less permanent; casualisation and insecure work conditions now affect 40% of the Australian workforce. In Germany it was considered a national emergency when it hit 20%. Recent penalty rate cuts are about to reduce the take-home pay of 700,000 Australians, which devastates young workers in particular. As I write this, it's been announced that pharmacists will join retail and hospitality workers in having their rates cut.

Much mockery has been made of recent suggestions that young people are somehow themselves to blame for their struggle to obtain property. The mockery is deserved, the situation isn't. An insistence that forgoing barista coffee or avocado toast will somehow redress decades of intersectional restrictions on opportunity is an insult to those living in the material shadow of decisions that reward the wealth for being wealthy, and offer fewer and fewer opportunities for anyone else.

There were many expectations our parents had when they raised our generation. That we'd have less than they did wasn't one of them.

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About this article: Frocomm Australia commissioned Van Badham to write this article, and gave Badham complete control over the content of the article; we will offer more articles by Van Badham, and others, in the future on the topic of housing affordability.

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