Business & Economics

Generations apart: Housing and inequality

When Sonia Arakkal, co-founder of the advocacy group Think Forward, saw the 2017 federal budget, she resolved to do something about what she considered to be a lack of political interest in the challenges facing younger generations.

Teaming up with co-founder Megan Shellie, who had penned several articles on the lack of housing affordability for young people, she set out to increase the public’s understanding of the issues facing younger people.

Since 2017, the situation has, if anything, worsened. The generational divide in Australia has deepened, mainly because of soaring house prices and the impact of lockdowns. A quick glance at the financial structure of Australia reveals why younger generations are disadvantaged. The stock market is just over $2 trillion and superannuation is about $3 trillion. But the housing market is nudging $10 trillion in an economy that produces just under $2 trillion annually. That financial distortion massively favours older people because they were able to buy houses when they were at much lower prices. Young people cannot hope to make up that ground.

“It is crazy that we have become a country where we protect the interests of those who invest in housing over those who don’t even own their first home,” said Arakkal in an interview with this author.

“Housing is one of the biggest drivers of intergenerational inequality and not just for young people. Not owning your own home is one of the biggest determinants of poverty in retirement.

“One of the reasons that the wealth of householders under 35 has barely moved in 50 years, in contrast to wealth for older householders, is home ownership and the rising asset prices associated with that.”

Arakkal believes house prices are not the only economic factor creating inequality. Another is the treatment of tenants. “There are many societies in the world where the housing system has blown out, as it has in Australia. But we have some of the least friendly rental regulations in the world. If we are going to set up a situation where young people aren’t going to be owning their own homes, if we have given up on that ideal – and I am sure many people have – then we need to recalibrate our rental laws to account for that. 

“Victoria has introduced rental laws that do not allow you to do simple things, like put up pictures on walls. In places like Berlin or New York, the rights of homeowners to terminate leases are much more limited than in Australia. If we are setting up a world where people will be long-term renters that balance needs to change,” she said.

Arakkal, who studied law and works in the public policy area, says there are many other structural biases working against young people, including taxation, superannuation, a lack of wage growth for the young and rising unemployment. She says politicians tend to take an expedient approach, only examining problems in a piecemeal fashion, such as the inquiries into supply-side problems in housing, franking credits, a retirement income review, intergenerational reform and the Productivity Commission’s examination of estate regulation. 

“It is crazy that we have become a country where we protect the interests of those who invest in housing over those who don’t even own their first home.”

Think Forward is advocating a more complete approach. “What we want is a federal parliament inquiry into intergenerational fairness that brings all these threads together. What is missing is the political appetite to do something about it.”

One reason why the issue is not looked at with sufficient rationality is popular notions of the ‘worthy poor’, according to Arakkal. “When you think of who are the worthy poor in society it is very much an image of an elderly person with a walking stick, struggling. The elderly are seen as the worthy poor in a way that other parts of society are not. 

“There are very good reasons for that and in many instances the elderly are worthy poor. But what we have is a whole generation hiding behind this image, or perception, in order to justify unprecedented tax breaks, and to protect policies in their interest. Age is no longer a proxy for the worthy poor. We have to rethink how we think about who in society we need to help.

“It is a unique opportunity for the Rationalist Society of Australia to interrogate tightly held notions and think about whether, in contemporary society, that is a valid characterisation. Have we let a whole generation get away with this characterisation of the old lady with a walking stick even though it doesn’t actually represent their lives or lifestyle?”

In Australia, political divisions have typically been defined in class terms, but Arakkal contends that this is no longer sufficient. “I don’t think generational analysis explains it all in the same way that I don’t think class explains it all.”

She says the issue is not just intergenerational fairness, but also intragenerational fairness. “I don’t think generational envy is a good look for anyone, but if we do see the generic blue-collar worker versus white-collar worker distinction as the only thing that we are talking about we miss important differences between the generations. Nurses, teachers, blue-collar workers who are now retired have more in common with their own generation than they do with young people entering those fields and professions now.

“When a generation as a whole does badly, the poor in that generation do even worse. The circumstances of a young teacher entering the workforce today are very different from those of a young teacher that entered the workforce in the 1960s or 1970s who might be in their retirement now but own their own homes.

“Young people are resentful. It comes out as jokes about baby boomers and baby-boomer bashing. But underneath those jokes is a very real strain that young people in our society are feeling.”

Photo by Tom Rumble on Unsplash.

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About David James

David James has been a financial journalist for 28 years. He was a senior writer and columnist at BRW for 25 years, a senior journalist at AAA Banking magazine, an editor and writer for stockbroker JB Were & Sons and a journalist at The Melbourne Herald. He has a PhD in English Literature from Monash University and now works as a freelance journalist and editor.

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