[+] Great Wealth Transfer Creates Mismatched Opportunities

In the next 30 years, $3.5 trillion will be handed from one generation to the next, creating the potential for enormous change in Australia. Millennials will take home a big chunk and gain enormous opportunity, but it might not be enough to solve one of their biggest problems. In a “topsy-turvy” housing market, the great wealth transfer could fix the housing crisis but value for money will mean something different to what it does today. It is a mismatched opportunity for developers—and a time to recreate Australian society as we know it. Ray White chief economist Nerida Conisbee says older generations had strong tailwinds to create this wealth. “Somewhere such as Newtown would have been super cheap decades ago and would have increased in value substantially,” Conisbee says of the inner-western Sydney suburb. “They’ve created a lot of wealth because house prices have rocketed. “There are a lot of very wealthy baby boomers who will be passing their wealth on—but not to everyone. ▲ Ray White’s Nerida Conisbee says the wealth transfer will particularly benefit those who bought in good locations or invested heavily in property. “Not every baby boomer is the same ... there are some in vastly different situations. “There’s also a lot who are spending their retirement, living longer and wanting a better life than their parents had.” A lot will have to happen to accommodate growth in the future financially, in property and for the population, and right now development is not keeping up with demand. “It’s a growing country, we have a decent population, which is a major component driving our economy, so we do need a lot of homes,” Conisbee says. “So low levels of housing supply are keeping house prices elevated but it is hard to predict what’s coming over the next 30 years. “The critical thing at the moment is just ensuring we have enough homes.” A mismatched opportunity CoreLogic head of research Eliza Owen says there is a bulge in the population and little movement in current housing stock. “Housing is not being efficiently used according to the structure of the population—it’s kind of topsy-turvy,” Owen says. “A lot of older Australians who benefited from purchasing cheap housing in the 1970s or 1980s are living in larger properties even though they don’t need the extra bedrooms, versus young families who may only be able to afford smaller properties or apartments. “Ideally you’d have economic incentives to address that and that’s where people talk about the implementation of a broad-based land tax.” ▲ CoreLogic head of research Eliza Owen says there is a mismatch between house types and where people want to live. Owen says there are additional challenges beyond creating a new land tax system. “Older Australians feel more comfortable ageing in place so if there’s nothing local for them to downsize into it can create a challenging environment,” Owen says. “For more affordable housing and more efficient and suitable housing we need a supply-side response, which is about creating medium and high-density in traditional suburbs.” For many of the younger generations, by the time a significant wealth transfer occurs they will already be getting on with their lives and moving beyond family homes to lifestyle properties. “We are hearing that anecdotally and we’re also seeing that in capital city growth trends,” Owen says. “Some of the fastest-growing areas are actually some of the higher-end apartment markets of Sydney, such as Coogee and Clovelly which have grown more than 7 per cent in value over the past three months.” Wealth attracts wealth—but what of value? Foresters Financial penned a white paper into the implications of the great wealth transfer and where the money will go. Foresters Financial chief executive Emma Sakellaris says they found that about 72 per cent of the net assets of those aged 65 years and older were tied up in housing, but that there was little room for movement. This market will grow to $100 billion by 2035 if prices grow at the same rate as CPI. “Parents are not moving either because Service Australia has a strange asset test for your principal place of residence so there’s no real incentive for baby boomers to downsize,” Sakellaris says. “There’s no reason to move, and if they do, where do they move to? Then they’re competing in the next tier of properties. It’s a vexing situation.” Sakellaris says the people who will inherit the greatest quantum of funds already have money and transferring funds intergenerationally is already a consideration for some. “ Inter vivos trusts and testamentary trusts have always been very appealing particularly to families with larger wealth and intergenerational businesses and investments,” Sakellaris says. ▲ Foresters Financial chief executive Emma Sakellaris says options include residential property funds that track and grow with the market. “That is particularly true for farming communities and there’s definitely tax advantages. “Investment bonds would be used for the movement of money across generations in most cases before a trust because it has greater protections around being contested and still has tax benefits. “Private credits are very on-trend at the moment as is anything that’s off the market but you have to have money to access those facilities.” The chief executive says younger generations are unlikely to have the economic growth their parents experienced and that housing was creating a new tier of class. “Now it’s really who owns property and who doesn’t—that is really the social divide,” Sakellaris says. “Fundamentally we don’t want a divided society, because a divided society is a bad society. It creates all sorts of social harmony problems and reflects our values as a community. “As much as it is a problem from an investment perspective we need to solve the housing problem otherwise we are not going to be living in a society in which we can all thrive.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Great Wealth Transfer Creates Mismatched Opportunities

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