The case for and against the Australian dream

For so long, a fixture of Australian life has been working towards the great Australian dream. It may be somewhat stereotypical in days of the almost universal transformation of day-to-day life for modern Australians, yet aiming for a little slice of suburban paradise remains a singular constant, a fixed connective tissue that bridges an increasingly growing generational divide. 

But as the economy shifts and times change, the path towards homeownership and economic security seems to be de-prioritized and considered an impossibility by many in the younger generations. Many economists are beginning to analyze behavioral trends and data, asking some of the big  questions that have never seen the light of day in Australia, such as: “Is it realistic to try to own a house in Australia?”, “Is home ownership good for the economy?”, “Could older generations be doing more to assist younger generations in purchasing houses and in effect, reducing the weight of initial debt in society and possibly stimulating our stuttering economy?”

This issue seems to have caught the eye of the highest offices in the land. In an attempt to kickstart consumer spending and growth, the Reserve Bank has cut its interest rate down to 0.75% which is supposed to encourage people to borrow and spend. But this hasn’t been working exactly to plan. Homeowners with large mortgages, according to Reserve Bank Governor Dr. Philip Lowe, are the reason consumer spending is weak and the economy isn’t moving. 

Earlier this month, Lowe attempted to explain why this hasn’t happened yet to the House of Representatives, saying that weak growth combined with falling house prices are worrying mortgage holders who would rather pay down their house debts than increase their spending. They would also prefer to save a larger proportion of their income than buy goods and services. On top of all of that, people seem to avoid spending their tax refunds and instead leave their money in their offset account, to reduce the interest they’re paying on the mortgage. Interest rates may also be low, however, house prices have begun the year off well, with a 1% rise in January according to CoreLogic figures. 

Yet there is absolutely no question on the positive effects the Australian housing market has correlated to a healthy economy. An example many are sure to remember is the most recent sustained housing market downturn took place in the early 1990’s, at which time a recession also occurred. A healthy housing market and rising house prices are also proven to increase consumer confidence and spending. 

But the RBA has been clear to outline that the current housing cycles are moving in different directions and cycles, and variations combined with macro-economic factors are leading an increase in the entry point into the market. With a lack of buyers, there comes many negatives, including negative sentiment towards the market as a whole, less buying competition and increased debt which impacts the economy.

It seems, however, older generations are beginning to respond to the desire amongst young Australians that not only is beginning to fade, but is having negative effects on the economy.
According to an Australian Financial Review article last year, the ‘Bank of Mum and Dad’ is now the ninth-largest lender in Australia, accounting for more than $29 billion in outstanding home loans. This makes it bigger than Bank of Queensland, HSBC Bank, Citigroup and Teachers Mutual Bank.

Expert Karl Bower suggests that this is perhaps the ideal way for the Great Australian Dream to become the Great Australian reality. He suggests that Australian parents could be assisting the younger generation with options like rent-free accommodation, co-ownership, assistance with an initial deposit to reduce initial debt (which would free up money to stimulate the economy) or even a limited security guarantee.

Whilst some may consider these options somewhat unappetizing or a little too benevolent, he argues it is preferable to the ‘cost of not helping’. He argues that with historic highs in many property markets, “an early inheritance may not be on the radar of many parents, but the idea of funding a much higher entry price (into the market) after they’re deceased, and with possible tax consequences, might just bring the discussion forward.”While countless media pieces are written to highlight the generational divide, with blame or opprobrium metered out in equal measure at each respective party. The indefatigable fact is that irrespective of birthdate, we all share the same economy, and most certainly the same dream of an idyllic portion of the nation to call our own. Reduced debt, a stimulated economy, and a healthy housing market is positive for almost all Australians, and it will be interesting to see how the roles each generation play, especially if home values in key markets continue to rise as they have since the beginning of the year.

Click here to join us for a live online presentation with Karl Bower on Tuesday the 25th of February at 7pm (AEDT) to gain further insight into lending, and the strategies parents can use to help their children get into the property market.