Locked-out: Generational inequalities of housing tenure & housing type podcast

Transcript

Locked-out: Generational inequalities of housing tenure & housing type

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Fiona Allison (FA): Welcome to the Emerald Podcast Series. In this episode, I'm speaking to Graham Squires and Braam Lowies two of the authors of “Locked Out: generational inequalities of housing tenure and type” published in Property Management. The paper was also authored by Peter Rossini and Stanley McGreal.

Professor Graham Squires, Massey University New Zealand is an international economist, geographer and planner with expertise in property and housing, he is the author of six books and Co-editor of the Property Management Journal. He is also the president elect of the Pacific Rim Real Estate Society, PRRES, Council member of the New Zealand association of economists NZAE and a Fulbright Scholar. Grant also works with industry as a CEO of The Property Foundation and director of Property Knowledge.

Dr. Braam Lowies is a senior lecturer in property at the University of South Australia and a qualified chartered surveyor. Braam is an associate of the Australian Property Institute API. He serves on the board of directors of the Pacific Rim Real Estate Society, and on the National Committee of the API's Australian property Research and Education Fund. Braam is also the director of UNiSA Australian and Housing and Urban Research Centre. He has been awarded academic scholarships (national and international), and has widely published research articles in Academic Journals, and presented his work at academic conferences. Braam's research area is in the field of behavioural issues in housing and finance. More specifically, his focus is on financial capability issues in the aged population in making housing, financial and investment decisions, further research interests include housing affordability issues, as well as alternative and disruptive property investment vehicles.

So, I'm going to start off with you, Braam. So, can you first give us a bit of a general overview of this paper? Where the idea come from? And how do you identify the key issues relating to the generational inequalities?

Braam Lowies (BL): Thank you for the opportunity. Fiona and Hi, Graham, we really set out to explore the generational differences in property tenure and type in Australia's main metropolitan areas. And we were really interested if Millennials are more likely to rent and then own property and what the reasons for that are, is it really choice in lifestyle, or then more importantly, is it because they are locked out by older generations, which in Australia holds the largest share of housing wealth. We know in Australia that we have a growing housing market that promotes an occupation tenure, we know that we have a liberal welfare regime here in Australia, and it's really entrenched with the ideology of home ownership. The problem is that this ideology is diluted. As in our cities, we find that there's a stark contrast between our younger generations who are not homeowners and growing and this is important, a growing ageing population that holds most of our housing wealth. So looking at these sharply defined generational issues we set out to explore and analyse, then how housing tenure and differences in housing type vary on a generational basis across Australia.

Graham Squires (GS): Yeah, just to add to that Braam, I think from my perspective, I see this, particularly from a New Zealand perspective, where I work at university here, and sort of following the affordability story, also in the UK and around the world. And, you know, we've seen an exponential rise in house prices, but interestingly, a sort of a beginning of a decline in homeownership and the rise of rental properties, you know, particularly within certain generations, as you mentioned. So, I think this sort of sits in the wider framing of the affordability debate, that's, that's raging, and it's not going to go away anytime soon. So, I think there's got a lot of purpose and importance to it. And sort of secondly, as well as sort of framing it within that affordability context, this idea of generations and intergenerationally. And I like in this paper, how we've sort of tried to make that difference between generational research and intergenerational research and try and look at the interplay of you know, how wealth is passed through families, but also, you know, when you look at actual specific generations and how that is changing, I think that's, that's largely the contribution that we're making here.

FA: I mean, that makes me think, is finance, the biggest factor here? In terms of whether people are owning homes? Are they renting homes, you mentioned is quite a similar situation in the UK, or is there a just a shift in attitude that homeownership isn't the be all and end all?

BL: Yeah, I think that that comes down to housing policy again in Australia, currently it used to be all and end all that's our housing policy, it promotes home ownership, the problem that we are sitting with is that we have a rapidly ageing population, as I said, that holds most of this housing wealth. And then in stark contrast to that we have millennials that that cannot, and as Graham rightly said, housing prices are rising, it's becoming more difficult to actually purchase and own property. And the generation that that is struggling within this is a younger generation that cannot enter that housing market due to a number of reasons. And one is the monetary aspect of it, you know, not having the liquidity to actually put down a deposit and purchase a property, the effect is really based on housing policy directly.

GS: Yeah, and certainly, I think a lot of this policy needs to recognise, you know, the different qualities of housing, and in terms of it being a, yeah, it is a consumption good, people buy and sell it. But it's also a social good, you know, it's a right to housing and a right to having a roof over your head, you know, warmth and shelter, all those sorts of things, but it's also an investment goods. So it makes the picture very complicated, I guess. And a lot of policies are sort of fit around this consumption aspect of housing in terms of it being a supply side problem, but I think we can't really get away from that it is an investment good. And beyond the supply side, there's those investment components that are having an impact on the market and having a feed-through effect on the different tenures. So, you know, whatever happens to any policy that affects investment is going to have a feed through effect in terms of owner occupation and rent, whether that's private or social.

FA: Is that somewhere where the policy needs to change? I mean, it's the larger private rental market as opposed to the more social rental available or some more social housing available.

BL: Yeah, well, you see that links, to another important point. And if we take the Australian situation, currently, the private rental market is not a friendly market to enter, our outlook of home ownership is really investment driven, as Graham rightly pointed out, and that makes it difficult for people to enter the rental market. Rents have gone up exponentially in Australia in the past year. And it's a really highly competitive market for people to get in. And the social effect of that is people are driven towards homelessness, even high-income earners find it find it really difficult to enter the rental market. So yes, there's definitely an opportunity because of the gap to address this this rental affordability issue, because of the housing affordability issue.

GS: Yeah. And just to add to that, I think is it's a combination, isn't it? I mean, we look at this paper and a combination of tenures and types, they sort of puts forward that we need a combination in terms of different types of tenure in policy, you know, whether you look at just purely whether it's things like rent control, or whether it's supply and demand subsidies, if we see it as a consumption good, and, you know, maybe looking at aspects of interest rate, deductibility, all those sorts of things when we look at the investment side of stuff. So, I think it's a combination of policies that's dealing with a combination of tenures and types which this paper looks at. And I think the other thing that we've touched on in this paper is looking at speciality. And the ways in which policy needs to look at space and spatial justice as part of the mix. Because certainly with various different suburbs and streets, having a way in which it can lock out particular generations means that policy has to shift to try and redirect some of the difficulties that have been placed in places. So as a spatial component as well, that's really important.

FA: I mean, talking of policy, like quite early on in your paper, you know, you highlight that governments mainly focus on ageing populations in terms of health and social care. And there's not the emphasis that's given to standard of living and these inequalities in housing. So, what why is that the case? Do you think?

BL: Yeah, that's an interesting point that we that we make, but it's really money driven. Again, I refer to an ageing population that is that is exponentially growing, and health and social care issues are top priority for government. So together with that, housing policy, in terms of that is very strongly focused on ageing in place, and ageing in place means an older population staying in the primary property, may it be whatever the definition of home there might be. So, the focus is really on the I think the monetary aspect of health care and social care, residential aged care from the onwards because of that, the ageing in place policy, keeping our older generation in, in their primary residences, and because of that, holding on to property that might be better developed and better distributed among the younger generations

GS: Yeah, I think that feeds into some of the asset-based welfare conversation. We touched on this in the paper. If you've got an ageing wealthier population, you've got the ability to build on some of that housing wealth to support their health care and social care, and in later life, I think the warning signs that we put forward in this paper is that, you know, if you've got an ageing population and a generation that are starting to not have asset wealth in housing wealth, because they're renting more, that places that asset based welfare model in difficulty, because you're going to get a new cohort in age that a) are not wealthy and b) not be able to use some of that wealth through housing to support their care in older age.

BL: Yeah, important growing and adding to that is, you know, that the ABS data shows that increasingly, an older generation, firstly, are becoming renters, especially older women. Secondly, that has to enter a very competitive private rental market at older age. And secondly, we are seeing more older Australians retiring with a mortgage. And again, that places pressure on that model.

GS: Yeah, definitely, I think this sort of touches on maybe for another paper, but the ideas around reverse mortgages and other different ways in which investment vehicles are going to be used in the future, as older people have less asset, housing wealth, to back their care in older age. Yeah.

FA: That’s really interesting, especially like, the generational differences, because there are, you know, with the ageing population, which Australia has not been used to, you know, it's happening around the world, we're having a first time of so many amount of people are still alive a certain age, and how do we manage them within society, we've, you know, life expectancy improving and health outcomes improving and stuff like that, and the way that generations are different, where a lot of people go into further education, and they maybe start families later than previous generations did. So, there's sort of many different dynamics at play, as well, as you know that the socio-economic status, it's almost your societal and cultural status has changed over generations as well, which is really interesting. So, you've used the generational definitions, labels, such as your baby Boomers and Gen X. And obviously, you've already referred to millennials. So, which of these current generations is, obviously Millennials are having the most problems with homeownership, but I was interested in the point you say about, you know, older people, and now entering the private rental market? So what ages are those? Now?

BL: That's a good question. If you've by definition, we've got older people as the age 65. and above, but we will also go further with young-old and older, so your young-old will be between 65 and 74, with your old 75 and above, the fact is that those that move into rental at older age, there's various reasons for that might be one of the biggest reasons is of a partner passing away. Normally the husband and the older person not having enough liquidity to actually go forward, you know, property and then default into rental. It's a small percentage currently, but alarmingly, it is increasing exponentially.

GS: Yeah. Just to add to that really. I think that's, that's interesting, isn't it? How that what was traditionally sort of a fringe, and a marginal and an outlier is now becoming more the mainstream as the proportion of people in older age, having to seek accommodation by alternative means, then, you know, what would be normally staying in their houses longer. Certainly, aspects of you know, the rise of sort of retirement villages and people having to move into alternative homes is becoming part of the picture now. And yeah, and this, this goes back to that point we were making before about how it's all related to ageing population and cohorts and generations are shifting, I think these outliers becoming more the norm is going to have an impact in terms of what policies are put forward. And pro-aged care-housing services and actual bricks and mortar are going to become higher up the agenda, I think.

BL: To add to that Graham again, it brings us back to the paper and the policy of ageing in place. There are other options for older people like the retirement village model, downsizing, those kind of options are there but with the current ageing in place policy you know, those options are not acted upon by older people that transition from the primary home to retirement villages in Australia. It's partly contributed to the ageing in place model but it's also a really difficult business model in terms of retirement village and retirement village accommodation. Again, you know, we're going off track with this paper, but it's quite it's important to know why that wealth is locked in in an older generation. It's not easy for older people to actually downsize or to move into retirement village accommodation there's many factors that, that prohibits them to do that, you know, if you sell your property are you going to pay rights and so forth to actually own a smaller property, there's a life right system in terms of retirement villages that in a net effect may lead to a loss one day when the property gets sold or get passed on to, to another owner. There's many factors that's, that's driving older people to keep them in their homes and age-in-place. And then there's the emotional attachment to it as well, and family pressure. You know, we don't explore that in this study. But it's important to note these things as a premise upon which we did the study.

GS: Yeah. And also, I was just thinking about sort of spatial disadvantage, and spatial justice that we cover in the paper and how certain age groups will be locked out of particular areas and places, we're sort of arguing, you know, when we look at South Australia, Adelaide, for instance, you know, the core is an area that's been locked out as the land values get higher, and people hold on to properties. But if there's an increasing generation that are being pushed to the periphery, and we're arguing here, that it's an older generation that are getting pushed out into the periphery, there's certainly an issue on the horizon in terms of access and access to core services that are often in the city centre, that people are going to not be able to reach traditionally, it's you know, it's younger generations, it's getting access to work and places of work. I think this might even spill over to access to, you know, core services, health, hospitals, all those sorts of things, putting pressure on the model.

BL: And then to add to that infrastructure as well, you know, you push to the city fringes, yes. And you have to go to your work and travel times, and is horrendous, especially in Adelaide from city fringes, that adds to that complexity, and has an impact on house prices.

FA: That's another interesting point, really, because you know, there's a lot with the older generations who rely on things being nearby as they might not drive, or no longer be able to drive. So you’re right; that infrastructure, and the transport needs to be in place for them to maybe consider where they live, what if where they live, is everything on their doorstep in their neighbourhood, then why would they move to you know, a retirement village, I mean maybe there's also the fact that people are working later in life as well, people you're considered to move to retirement villages aren't technically retired, which is, you know, another factor that goes with you know the sort of the ageing population is living longer, And we're working longer. It's just interesting, how many factors are really, really at play here, and how I just like the analogy of, you know, the sort of older generation locked into ageing in place, while younger generations sort of locked out of the, you know, the housing market, just find that it's just really good point that you’re making there.

BL: Yeah. And together with that infrastructure problem, and look, it's publicly known, we haven't been good when it comes to that there is definite push factors away from fringes for millennials and pull factors towards where all these amenities are creating a rental market issue. Understand, because that's the next step. If I can't find the infrastructure, helping me to get to work, then I need to go closer to work. And then people are paying double rent than what they've paid in a year ago to actually do that. Which brings us to the point, is it really a monetary? Or is it lifestyle? Or is it really because of the housing policy situation in Australia that this effect is there?

GS: That's a good point Braam about lifestyle. And it just made me think about the size of plots that we looked at within the study, it was interesting to see that sort of subdivision. Not always the case. I was wondering if you'd want to open up on that a little bit more, you know, in terms of lifestyle, we often think in sort of the Antipodes that it's all about having these big court rate blocks or even larger, what were your thoughts in terms of lifestyle size of plots, and how that's having an impact in terms of spatial disadvantage and how the pattern of change is happening towards tenure and subdivisions?

BL: A lot of the properties and again, you know, I don't want to generalise a lot of other people live on these large blocks very close to the city, in properties that is quite dilapidated. The social issue attached to it are things like fuel poverty, you know, older people, skipping meals, you know, to actually take medication, things like that, if the policy is ageing in place, and I'm looking at health and social care, and we can make it a more nuanced policy for older people to actually move into smaller housing, even residential aged care. These plots and subdivisions of these plots might open up opportunities to develop and to provide more affordable housing for those on the city fringes and coming closer to these amenities.

GS: That's a really good point, isn't it? You know, a lot of people being asset rich, but not cash rich, and there's sort of those maintenance questions which feed through to you know, ideas of quality of places You know, people might be looking on paper wealthy and not have sort of envy being charged baby boomers but actual realities of sort of dilapidated properties, as you refer to, you know, it's part of the picture, isn't it?

BL: Yeah, exactly. And that brings us to another field. And that's how older people perceive unlocking equity and those properties, because there's a lot of locked in equity. You know, that's not part of this paper. But we have done a previous paper on how older Australians feel about reverse mortgages, and the outcome is not good. There's a very negative attitude towards reverse mortgage. So how do we get if it's not going to be downsized or moving into other forms of housing and accommodation? How can we get that equity unlock, you know, to actually increase liquidity and through that increase lifestyle, and, and quality of life?

GS: Yeah, indeed and only just starting to think of different asset vehicles. I mean, Australia, New Zealand have fallen in love with investing in property. So, I mean, if some of this wealth is unlocked, and put towards different investment vehicles that sort of might free up more space for actually housing as a home, and housing as a social good, as we talked about before, and people's relationships with capital might change, you know, as capital could be released. And if the market isn't house prices, and high house prices, and exponential house prices aren't the driver anymore, that might change the landscape of housing as as an investment vehicle, it's interrelated, isn't it? It goes back to that initial point about different tenures having different qualities to them.

BL: And again Graham, it comes back to to the policy issue that we talked about, and the entrenched ideology in Australia, and the policy promotes investment through negative gearing, and that's a big driver for older generations that is cashed up to actually move into that second and third property, you know, that's an opportunity. Younger generations, or very few in younger generations have to capitalise on

GL: Yeah, sort of shaping the market, isn't it? Really, I mean, I'm just reflecting on New Zealand, there's just been a scrapping of interest mortgage tax relief in a similar way to the negative gearing, and that has had an impact on the market and change that sort of investment attitude, and trying to encourage newer properties to be built and developed, you know, which sort of fits in with the supply side narrative. But you know, at a minimum, this just starting to encourage good new equality housing as well. So yeah, it's an interrelationship of investment. So yeah, policy, it goes back to that it needs to be nuanced. It needs to be a combination, try and move the debate beyond you know, it's all greedy landlords that are driving the problem. It's, you know, everyone's complicit in this, aren't they? Especially, you know, the bigger picture stuff in New Zealand, Australia, where it's a large, fragmented mum and dad, owner occupier investor market that feeds into the sort of the political question, doesn't it? It's how would you actually instil change where votes are won and lost on you know, people's relationship with capital, and thus, you know, housing ultimately.

FA: So, in Australia, there are programmes that are there to maybe help younger people with housing, such as the Commonwealth rent assistance programme. Could you just talk a bit more about that, please?

BL: It's straightforward, it's not working. It's not doing what it's intended to do, because of many reasons, and restrictions and criteria that you have to adhere to actually qualify for these type of programmes. So, to be blunt, and to be deadly honest, these programmes are failing. It's not assisting our younger population in terms of rental but also, more importantly, as Graham talked about nuanced homeownership policy moving from there onwards into homeownership.

GS: We're talking about, like a staircasing system just to sort of fill in here so people can sort of buy into a piece of equity as well as paying rent. Is that right?

BL: That's correct. Again, the take up of this is not perceived as positive. It's again, like many other policies, that's proposed. And as we just talked about the reverse mortgages, it's not something that that is positively perceived by the population and by younger population, my point would be to be very more upfront with rental assistance and for government to explore the European rental model more into really have a good look at how that is working, because that's the model that's working and how we can adapt rental assistance and if more friendlier rental market for people piggybacking or looking at least at the at the European system, which is currently not happening. Secondly, there's the issue of stamp duty in Australia. Now it differs from state to state, but it is exceptionally high in South Australia. You know, for a first-time homebuyer, it's really difficult to save a 20% deposit for a property Firstly, a given that average property prices have exponentially increased in the past few years. But over and above that, you know, there's still 5% of the property value that needs to be paid into terms of stamp duty. And it's just a suggestion there might be an opportunity to nuance housing policy, in terms of, of lifting the stamp duty restrictions on first time homebuyers in certain spaces in areas where there is enough infrastructure to get to work to get back and into increased supply.

GS: Yeah, I think I'm one of your sort of former points about tenure differences. And I think we have to be very mindful of the trajectories of tenure, the European model far higher in terms of social renting and the social acceptance of social renting as well as the economics behind it, you know, New Zealand's looking at about 6%, social rented, and it's been seen as more of an afterthought. And quite polarised really, you know, you're sort of rather private, renting or, or public renting, you know, as a rental of last resort, you know, would be the sort of the language that's used. So, you know, there's a lot of polarity that needs to be taken out really in that conversation and looking at how more balanced models can be brought in, you know, how better hybrid models can work as well, sort of asking the question about the staircasing system, which sort of tries to work as a hybrid, but it might fall short of the actual intended outcome, which is dealing with housing affordability across all generations. So, I think that's an important aspect, isn't it? Is that you know, how, how do people look at tenure, and that needs to change it might be the change in the market does the thinking for everyone, you know, as if the bubble does burst, and the markets does start to plateau, people might stop seeing owner occupation and in while certainly investment in property, at the extremes, there has been the real sort of target for fortune, you know, I think those trajectories of tenure from where different markets have come from, and how people will start to perceive these different tenures, there's big questions here about you know, or how will people view investment in property in the next generation, you know, there might be complete checking out with private owner occupied tenure, as different asset classes become more popular to invest in and just take the, what we refer to as imputed rent, or the dead money as people refer to of rent just take the hit and invest money into other areas. Because owner occupation, investment property for some generations, particularly younger generations that we talked about in this paper are being locked out of the market.

FA: So, it doesn't look like things are going to improve for Gen Z, when they start trying to enter the property market. But just as a final thought, you've touched on this a little bit, but what policy would be in place in an ideal world to you know, unlock the older generation and from their ageing in place, and their properties and, and help the younger ones, you know, without radically transforming the government. But what policies would help in your opinion

BL: Fiona, I don't think there's a there's a silver bullet homeownership has been a housing affordability attached to it. And now Rental Affordability has been an ongoing issue for quite a long time, I think it's two strands, firstly, we have, to an extent, have to leave it to the market to sort it out and not interfere that much. But then you need interference from government in terms of policy, to assist the market to sort it out. So it's really a fine line between those two. But currently, our housing policy is very strong aligned towards increasing wealth, property investment oriented, as Graham has noted, and those generations that benefit from those policies are the older generations. And Gen X, my generation moving closer towards end of career 15 years or 20 years and then into retirement are high investors in property and these investment properties because they are cashed up. So at that point, we need the market to sort itself out. But we also then need policy to interfere and to create opportunities for more affordable housing for generations to come. Otherwise, you're going to sit with the problem of top-heavy wealth orientated generations in terms of Generation X, and baby boomers. And then then your millennials and Generation Z lagging behind.

GS: Yeah, I mean, for me, it's I think you've hit the nail on the head there Braam. So it's this separation of sort of policy government and the market and they are intertwined. I mean, a lot of economists would look at the numbers, see what the numbers say, and then make the policy based on those numbers. But policy is intrinsic and intertwined within the market. And what we're seeing in housing is, you know, market is driving policy, not the other way around, you know, it's so big, and people invested in housing, don't want to scare the horses, you know, and that's why people will either, you know, will pretty much lobby for their own interests, and politically, you know, people will try and reach for the centre ground to not scare the horses. I suppose we could see this in another way in terms of, you know, being quite more radical about how we how we look at the housing system. And for me, I think we need a, you know, a real overhaul of the housing system economically and financially and look at the big picture, whether that's practically possible and politically palatable is a different matter. But I think looking at that big picture of what the housing economic system looks like, and what it could look like in the future, is really important, you know, and looking at that combination of both fiscal monetary and direct regulatory sort of approaches and how that combination could work, you know, it's not just working one part of the system, it's not just working on housing subsidies, you know, like that rental assistance type sort of consideration is the combination of these things, you know, it's not just saying, Oh, well, let's just put rent controls on that will solve things. It's they're all interrelated. And they all connect to each other. And I think what we're, we're suggesting here to give it some real purpose is overlay on this ageing population, and different generations and how different generations are going to have a relationship with capital and housing wealth, and how that's going to change over time. So then we can look at the big full picture of the housing economic system with a little bit more nuance that we're suggesting here.

FA: That’s great, thank you. I mean I appreciate that was a rather open-ended question that I use for the final one there. And you know, it's just interesting that this is not a unique situation to Australia, either. You know, this is happening in, you know, many countries around the world. This why this sort of research, although it focuses on Australia is relevant for a lot of people around the world at various ages at various stages in their lives. So, you know, I want to thank you both for writing it and for joining me today and discussing it in more detail. It's been really insightful, and I'm sure our listeners will really appreciate it as I do. So, thank you.

GS: Thanks for it. Also, thanks to our co-authors as well Peter Rossini, Stanley McGreal, our fantastic contributors, and yeah, sadly, they couldn't make it today but just want to make sure those guys are recognised as well. Thanks to you, Fiona. Thanks, Braam, as well for leading this

BL: No, thank you and then I totally agree Stanley McGreal and Peter Rossini that making a major contribution towards this paper. Thanks for joining Graham and Fiona. Thank you for the opportunity.

FA: My thanks to my wonderful guests today, to you the listeners, and to Alex at This Is Distorted studios for editing this episode.