Australians are older but not wiser: Growing class of investors who applaud house price increases; Prohibitively high cost of housing is seeing more and more young people rent
Tweet Topic Started: 20 Sep 2013, 10:06 AM (2,613 Views)
Australia has an ageing society and while living longer is good news for many, there are some major economic issues we need to understand to avert a huge problem in the years to come.
According to a recent UN report, roughly half the children born in developed and developing economies after the year 2000 will live to 100. Australia is no exception to a worldwide trend of increasing life expectancy. We are ranked equal fourth in the world, with a current average life expectancy of 82. The number one spot is shared by Japan, Switzerland and San Marino, where the average is just another 12 months (83 years).
To put this into some perspective, the global average life expectancy in the early 1900s was just 31 years. In early modern Britain (from 1700 to around 1900) is was somewhere between 25 and 40 years. In Classical Rome and Greece, it was 28. Most of you reading this now would have been long dead after 40 if you’d been borne at any time prior to the late 1800s.
But modern diets, standards of healthcare and higher quality of life in developed economies mean that we’re all now living longer, on average. The only problem with this is that we’re still working on a pre-industrial model of employment, with an expectation that we’ll all retire sometime around 60 or 65. So if we’re going to start living on average well past our 80s, that’s going to mean a longer period without an income. For children being born today who might live to 100, that could mean a working career of 40 years, and a retirement period also of 40 years.
Compounding the basic maths of this problem for Australia is the baby boomer ‘bubble’ which has tilted our demography toward the older end of the scale. This means there are fewer and fewer people of working age, paying taxes to run the country, and also (somehow) to support an increasingly geriatric population.
Few of us it seems believe that superannuation is going to come anywhere close to supporting ourselves in retirement. Repeated surveys reported in the media point to a sceptical view of even semi prosperity in retirement. And the high cost of housing could make this all potentially much worse for Australia for two reasons.
First, fast forward 20 or 30 years. Fewer Australians are going to own their own home on retirement. At present, roughly 78% of retirees own their own home at retirement age. This report tips that could plummet to just 2% by 2050. That could be a touch on the alarmist side but the consensus of these sorts of forecasts tends towards a gloomy view. Rates of ownership are falling and, as policy makers continue to fiddle with failed planning dogma, there’s little prospect of that changing. So at the oldies end of the scale, not only are there going to be many more of us aged over 65 (there were 2.5 million over 65s in Australia in 2002 and this will rise to 6.2 million in 2042) but for the majority of us, we may no longer even own the home we live in by the time we stop working. That’s a pretty fundamental component of today’s retirement planning up in smoke.
Second, at the younger end of the scale, the prohibitively high cost of new entry level housing is seeing more and more young people rent rather than enter the market. I am talking particularly here of new house and land packages on the urban fringe, the supply of which has been artificially restricted under land use policies introduced since the mid 1990s, and the supply of which was also discriminately taxed since around the 2000s (the GST combined with infrastructure levies and other charges apply ONLY to new housing supply).
There’s a growing class of investors who applaud every increase in house prices. But their enthusiasm should not be shared by sensible policy makers because this generation of today’s young people are not only being denied low cost entry level housing, but they will also be expected to pay a disproportionately high burden of tax. That’s because they’ll be among the minority of the population with jobs, supporting the rest of us without them. On top of this, they’re going to live a lot longer. Maybe to 100. So for some of them, their working lives will be spent renting other people’s property, paying higher taxes to fund a disproportionate number of old people, and then somehow fund a 40 year retirement.
It’s not sounding pretty, is it?
To me, this makes it all the more imperative that today’s policy makers understand the primary importance of promoting home ownership for all Australians. As an enforced means of saving, it beats superannuation, it promotes long term wealth generation and continues a long and successful tradition of home ownership for all in a prosperous and egalitarian society, as Australia has been.
That promotion of home ownership should not come through failed grants or financial stimulus to the demand side, but removing barriers and costs from the supply side. The rigid urban growth boundaries and densification policies which became fashionable under a succession of Labor State Governments since the mid 1990s are proven failures and should be abandoned. The discriminatory system of taxing only new supply through both the GST and per dwelling infrastructure levies is highly distortionary and has meant that between one third and 40% of the price of new house and land package can be attributed to taxes introduced only just over a decade ago.
Not only is it distortionary, it doesn’t even work: to the best of my knowledge, these upfront per lot levies account for only around 3% of local government revenues and there’s no way of linking the money raised to the things it’s supposed to be spent on (local infrastructure). Plus, it’s all but killed off the new home building industry, which is now producing fewer dwellings per thousand people than any time in the last 40 years, with the economic signals (unemployment being one) to show for it. Some achievement.
In summary, there’s almost no disputing that we’ll all be living longer, or that there will be more aged people as a proportion of our population than ever before. This can be cause for celebration, but it will also mean that the importance of home ownership as a broad social and economic objective for Australians needs to be returned to a central place in policy thinking, not shunted to the periphery of fashionable planning ideology as it has been.
Note that as part part of the baby boom, comes a death bust and over the next few decades our actual deaths double to approx 300k pa, meaning our natural growth may drop to zero or even negative.300k deaths will dramatically increase supply.Note also that we do not have to wait that long as many burbs in all capitals have had a declining population since 2001. In Brisbane, Rochedale (-14%) Jindalee, Chelmer, Redland etc. This is due to homes that were once families and now lone occupants. There time is close to leaving the home planet and so many burbs will have increased supply soon. The heirs will probably sell off these properties and be doing it as similar times, so I expect quite dramatic falls in those burbs.On the issue of increased tax… We also need to tax the asset rich/cash poor (over 65′s) more.1. GST to 20% and raise welfare and the tax free threshold accordingly to compensate. 2. Land tax to replace stamps and create reverse mortgages from Centrelink for those that are asset rich/cash for to pay. 3. CGT on all property sold under 10 years. Exemptions for real reasons to move – health, babies and work. No CGT after 10 years, ZERO! 4. Death tax on the value over $1million at 25% 5. Asset test the PPOR (value over $750k) for pension eligibility and also provide reverse mortgages exclusively from the govt, to those asset rich/cash poor. It is not fair that pensioners can live in a $10 million dollar home, have $1m in cash and still get a part pension!
Note that as part part of the baby boom, comes a death bust and over the next few decades our actual deaths double to approx 300k pa, meaning our natural growth may drop to zero or even negative.300k deaths will dramatically increase supply.Note also that we do not have to wait that long as many burbs in all capitals have had a declining population since 2001. In Brisbane, Rochedale (-14%) Jindalee, Chelmer, Redland etc. This is due to homes that were once families and now lone occupants. There time is close to leaving the home planet and so many burbs will have increased supply soon. The heirs will probably sell off these properties and be doing it as similar times, so I expect quite dramatic falls in those burbs.On the issue of increased tax… We also need to tax the asset rich/cash poor (over 65′s) more.1. GST to 20% and raise welfare and the tax free threshold accordingly to compensate. 2. Land tax to replace stamps and create reverse mortgages from Centrelink for those that are asset rich/cash for to pay. 3. CGT on all property sold under 10 years. Exemptions for real reasons to move – health, babies and work. No CGT after 10 years, ZERO! 4. Death tax on the value over $1million at 25% 5. Asset test the PPOR (value over $750k) for pension eligibility and also provide reverse mortgages exclusively from the govt, to those asset rich/cash poor. It is not fair that pensioners can live in a $10 million dollar home, have $1m in cash and still get a part pension!
Paul you must know that increasing the GST to 20% will add 10% to the price of every house in Australia.
Why do you want that?
Any expressed market opinion is my own and is not to be taken as financial advice
Paul you must know that increasing the GST to 20% will add 10% to the price of every house in Australia.
Why do you want that?
Peter Not in isolation to the other reforms to CGT, land tax etc as I mentioned above. Done in its total, yep, all good with an increase of the GST on housing.248,000 lone occupants houses with 4 or more spare bedrooms, 696,000 two people houses with 4 or more spare bedrooms, while 252,000 5 people households have 3 bedrooms.
Yep, no shortage here due to massive under-utilisation of our existing stocks.
Paul you must know that increasing the GST to 20% will add 10% to the price of every house in Australia.
Why do you want that?
Peter Not in isolation to the other reforms to CGT, land tax etc as I mentioned above. Done in its total, yep, all good with an increase of the GST on housing.248,000 lone occupants houses with 4 or more spare bedrooms, 696,000 two people houses with 4 or more spare bedrooms, while 252,000 5 people households have 3 bedrooms.
Yep, no shortage here due to massive under-utilisation of our existing stocks.
Immigration? 1. peaking emigration. 2. 60% of our NOM are temp visa holders. 3. 4.1 million boomers born here and now 5.3 million, 80% of which will require full or part pensions and free health.
You said this two years ago when population growth was running at 1.4%. Now it's up to 1.75% and you say we're still 'peaking'. When does it actually peak? What does 'peaking' mean to you? The net migration numbers keep growing! Surely if they were 'peaking' two years ago they would now be falling instead of rising. You seem to have a strange definition of 'peaking'.
Quote:
60% of our NOM are temp visa holders
Temporary visa holders can be here for up to 4 years, and they still need houses to live in. Even when they leave, they are replaced by even more temporary visa holders. The individual's visa may be 'temporary', but the temporary visa 'positions' are effectively permanent, since each departing temporary visa holder is simply replaced by one (or more than one, as the numbers keep rising) new incoming temporary visa holder. Your argument here is a furphy.
Think of pouring water into a bucket that has a small hole. All the water going into the bucket is there temporarily, but the water level in the bucket will keep rising if the water leaking from the hole is being replaced by water pouring into the bucket at an even faster rate. Each molecule of water may be in the bucket only temporarily, but water still permanently occupies space within the bucket.
Don't forget the migration figures are net. The figures include the fact that temporary visa holders departed.
Net overseas migration for 2012 was 236K people, 17.0% or 34K higher than 2011 (202K people). So, not only were ALL the departing people (including all the departing temporary visa holders) replaced by new people, but an additional 236 thousand new people were added on top.
So can you tell me why the abs report that the majority return within one year when clearly the majority of NON AU departures ticked 5 or more years to stay away and in fact can not return unless they apply for a visa again, either temp or perm?
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