Who has it better — the baby boomers or the millennials?
There’s a famous Monty Python skit called ‘Four Yorkshiremen’ in which four natives of Yorkshire in the UK sit in a group talking about how easy things are for the current generation and how much harder they were when they were young. The claims get ever more outrageous as the skit progresses and the whole thing very quickly descends into farce. It’s a classic piece of comedy and, if you haven’t seen it, check it out online.
But listen to talkback radio or read the comments section of a typical media story about the property market and you’ll find our own version of ‘Four Yorkshiremen’ here in New Zealand. Typically, the claim will be that young people have it easy compared to their forebears and that it was much harder for previous generations to buy a home because interest rates were so much higher and mortgage finance was so much more difficult to obtain.
But it’s not just the baby boomers who engage in this practice of comparative exaggeration. Trawl the comments section of any social media post about housing market and you’ll find the counter view — that buying a home is now more difficult than it has ever been and that boomers have ruined the property market for millennials. So which position is correct? Both. And neither.
The reality is that buying a first home has been tough for both groups, but for very different reasons.
Let’s start with the boomers. Most of you bought your first home in the 1970s and 1980s, at a time when inflation and interest rates were at historic highs. Over time you saw the value of your homes multiply beyond most people’s wildest expectations, and that increase in value (equity) has probably changed your life in ways that you don’t even realise. You may have used that equity to improve your home, to buy cars or boats, to travel, to bankroll a hobby, to help out your kids, to buy a business, or even to buy another property.
But what about you millennials? The median price of the average house has skyrocketed since your parents’ time. On top of that, you’ve been slammed with the requirement to find a 20 per cent deposit to get into that first home. But for those who manage to overcome that first hurdle, your early property owning years will be a lot better for you than they were for your parents. You have far more choice in what you can buy, and you’re buying your home during the most benign low interest, low inflationary, period in over 50 years. That means that the actual percentage of your household income that you’re having to commit to mortgage repayments is actually lower than it was for your homebuying parents in the 1980s, despite the huge increase in house prices.
And here’s the really good news. House price growth will continue for a while yet — despite what some commentators might tell you — and the speed at which that house price growth will take place (in real dollars) will be much more rapid for you than it was for the boomers. Even an average growth rate of 7 per cent means the average Auckland home will increase in value by over $50,000 per year and will double in value over the next decade. You’ll relatively quickly be able to use the equity in your homes to do things that took much longer for the boomers to achieve.
Buying a first home wasn’t easy in the 1980s, and nor is it easy now. But like most things in life, if it came to us too easily we probably wouldn’t appreciate it. What should be important is what happens to that property once we’ve bought it — and that hasn’t changed much in 50 years.
Buying a first home wasn’t easy in the 1980s, and nor is it easy now. But like most things in life, if it came to us too easily we probably wouldn’t appreciate it.