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The highest-net-worth generation in Australia is amid a generational wealth transfer. Baby Boomers are passing down inheritance to the younger generations, which is expected to have consequences for the property market.
With younger generations struggling to enter the property market, experts are expecting many to take the inheritance opportunity to purchase property.
This will push up prices and has the potential to have lasting impacts on the supply of housing across the country.
Property expert and founder and director of Tallpopie, Darragh Heard, said that as the multitrillion-dollar wealth of Baby Boomers is passed down, the property market is set to get even more competitive and challenging.
This will place ever more pressure on the government to address a worsening housing crisis.
“Even if the development and approval process is simplified/less stringent, and even if interest rates and inflation improve, it’s hard to see how we are going to be able to cater for the demand,” said Heard.
“Our baby boomers will be activating their tsunami financial legacies within the immediate next decade, billions of dollars’ worth, and Australia’s housing/infrastructure is not likely to grow fast enough to keep up.”
Heard believes the challenges created for the property market could make way for other investment opportunities.
Commercial property is already becoming far more popular among investors and these trends are likely to continue.
What could also follow is a wave of ‘mum and dad’ style investors, said Heard.
“On one hand we may see a new wave of ‘flippers’, because even if millennials inherit the ability to buy property, the cost-of-living crisis remains. They still need to be able to afford to service the remaining mortgage. Investing their inheritance to purchase property and then renovate and sell, is an excellent way to build equity to then buy what they can afford long-term,” she said.
“Then those who end up inheriting out-right owned properties, this may well drive re-developments in older established suburbs where their parents bought decades prior, because remortgaging for a reno is far more affordable than starting from scratch.”
More specifically to brokers, this generational wealth transfer will drive an increase in volumes.
Other than the obvious example of increased demand, founder of brokerage Two Red Shoes, Rebecca Jarrett-Dalton, said the trend of “reverse mortgages” is likely to increase.
“That is, mortgages where you don’t make repayments. The lender adds the interest to the loan and there is a mechanism to repay the loan in full when the borrower moves into age care or passes away,” she explained.
“This allows older borrowers access to cash for upkeep of their home or living expenses, maybe travel, or downsizing their home where they wouldn’t ordinarily qualify.”
With AMP Bank anticipating a $3.5 trillion wealth transfer over the next 20 years, the market is amid a major shift.
[Related: Housing affordability kept in check by lack of stock]
