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The Guardian - AU
The Guardian - AU
Business
Greg Jericho

Young Australians never stood a chance. For decades the controls have been set to favour older generations

older man looking at house for sale
‘As more younger people have been unable to get into the housing market, more of Australia’s wealth is held by those born before 1965,’ Greg Jericho writes. Photograph: Mark Metcalfe/Getty Images

Around the turn of this century the road to wealth equality in Australia was purposefully destroyed. Gone were policies designed to ensure everyone could gain wealth as they worked and aged, replaced by policies designed to add more wealth to those who already had it. Twenty years on, the impact of those polices is being felt not just by younger people but by the political parties that put them in place.

Last week a chart on Twitter showed that, unlike baby boomers and Gen Xers, millennials in the US were not becoming more conservative as they got older. It replicated the findings of the most recent Australian Election Study, which showed that not only are people becoming less likely to vote conservative, they are less likely to do so than people of the same age 20 or 30 years ago.

This demographic shift has been coming for some time now – it was already highlighted as something to watch out for in 2009.

It has occurred because of the massive shift towards the protection of corporate profits and away from workers’ ability to gain the rewards of productivity growth. As my colleagues at the Australia Institute revealed this week, more than 90% of the benefits of economic growth in the decade after the global financial crisis went to the wealthiest 10%:

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It has also occurred due to the abdication of efforts to combat climate change, and because of taxation systems designed to benefit the wealthiest, and cuts to government services that benefit the poorest.

And it has very much occurred due to soaring housing prices.

These economic and political settings of the past 25 years or more have led to the generation so perfectly named by Alison Pennington in her book, Gen F’d.

Imagine you were born in 1946 and by the time you hit 34, in 1980, you decided to buy a house.

Back then the average mortgage was about $31,755 (small nerdy data note: the ABS over the years has changed how it gathers home loan data and the more recent data shows the average mortgages from 2002-2018 were about 15% higher than previously thought, so I have applied this calculation to figures before 2002). At the time average earnings were about $12,755 a year and the standard variable rate on a loan was 11%. That meant on a 30-year loan you had monthly repayments of $315, or about 29% of your income.

The ratio that parents used to tell you to have was always 30%, and back then that was possible for one person on average earnings.

But let’s fast forward to someone born in 1980.

When they hit 34, in 2014, the average home loan was about $375,000 – an increase of 1,079%. But don’t worry, average earnings had also gone up to $58,700. Oh, sorry, that’s only a 360% increase.

That means the ratio of the average mortgage to average earnings had gone from 2.5 times to 6.4 times.

But the standard variable rate was just 5.93%, so surely your mortgage repayments were better? Sorry again. At $2,230 that is about 46% of average earnings:

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There’s a reason why households now need more than one wage earner: buying a house (or even affording to rent) is nigh on impossible on one income.

Last week when I noted the huge burden of the recent rate rises on younger homeowners, quite a few people contacted me saying they were in that category and were definitely feeling it.

But they were always quick to note that they were lucky because they actually had a home.

This was not something people in the past apologised for.

The reason I suggested the age of 34 in the examples above is that right now, for the first time in the period after the second world war, less than half of all people between 30 and 34 years old own a home:

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It’s a massive fall from the 68% of those born in 1947-51 who owned a home by 34. And it has major repercussions on wealth in retirement, because it likely means less than two-thirds of those born after 1987 will own a home when they retire.

This also has a major impact on the distribution of wealth.

Residential housing makes up about 55% of household wealth. And with more younger people unable to get into the housing market, more of Australia’s wealth is held by those born before 1965:

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Much greater shares of national wealth are going to those who were able to get into the housing market back when the size of a home loan was less than three years of an average salary:

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We should also remember that a home loan is not just for one year, and this is where even my examples of 34-year-olds taking out loans is misleading.

By the time that person in 1980 had been paying off their loan for 25 years, loan repayments were just 6.4% of the average earnings.

Even for someone who took out a loan in 1990, when the standard variable rate was 15.13% and repayments cost half of their income, repayments would fall to just 10% of average earnings by the time they reached the 25th year of their loan.

By contrast a 34-year-old who took out a loan in 2010 has not seen repayments get below 31% of average earnings, and the recent rate rises have seen them jump up to 41%:

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In 2003, John Howard boasted of rising house prices, saying: “I don’t get people stopping me in the street and saying, ‘John, you’re outrageous, under your government the value of my house has increased.’”

Back then millennials made up just 10% of people of voting age, while those between 38 and 57 years old born between 1946 and 1965 made up 37%. Howard was speaking to his home-owning voters and he had little worry about those unable to afford a home.

And he assumed more people would vote Liberal the older they got as they always had done.

But now millennials between 27 and 42 years old make up about 31% of all adults while boomers account for just 25%.

Millennials are not voting conservative because they have been denied the wealth shortcut granted to those before them.

And until political parties of all types begin to work to reverse the damage of the past 25 years, they will continue to see their votes go elsewhere.

• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work

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