The Impact of Australia’s Housing Crisis on Different Generations
Australia is grappling with a housing crisis that is acutely affecting both younger and older generations, whether they are renters or homeowners. Recent reports shed light on the grim financial realities faced by these groups, revealing the profound effects of escalating rents and rising mortgage interest rates.
Renting Retirees in Poverty
The Grattan Institute’s recent report highlights that two-thirds of renting retirees are living in poverty, struggling with inadequate savings to maintain their housing in retirement. Alarmingly, over half of renting retirees reported having less than $25,000 in net worth. This vulnerability is compounded by a rental market that, despite an easing in growth, still sees prices rising—CoreLogic reported a 4.8% increase for 2024.
As rental prices continue to climb, the Grattan Institute anticipates a growing cohort of older renters who will face financial hardship. Among households aged 55 to 64, the bottom 40% possess less than $40,000 in net financial wealth, reflecting a precarious situation as they approach retirement. Although the government has boosted the Commonwealth Rent Assistance payments by 27% recently, the Grattan Institute argues that this is insufficient to meet the needs of low-income renters. For instance, a retiree dependent solely on income support can afford to rent only a small fraction of available one-bedroom homes in major cities like Sydney, Brisbane, and Melbourne.
The report calls for a 50% increase in rent assistance for singles and 40% for couples, as well as indexing this assistance to the increases in rents for the cheapest quarter of rental homes in urban areas, rather than inflation. If enacted, this would allow single retirees to spend up to $350 a week on rent, thus improving their housing options.
Financial Strain on Older Mortgage Holders
Simultaneously, the housing crisis also burdens older Australians who have taken on mortgages. According to the Your Mortgage Home Loan Hindsight survey, around a quarter of mortgage holders across all generations are relying on savings to meet living expenses, illustrating the financial strain of high mortgage repayments. The cash rate hikes from the Reserve Bank of Australia (RBA)—which surged from 0.1% to 4.35%—have dramatically increased variable mortgage interest rates from 2.4% in April 2022 to 6.3% in January 2024.
While Baby Boomers report fewer regrets about their mortgage choices, with over half satisfied, younger generations face a different scenario. About 22.2% of Gen Z borrowers feel their expenses outweigh their income, in contrast to only 11.2% of Baby Boomers. This discrepancy highlights a generational divide where older homeowners appear to navigate the financial pressures of mortgages more successfully than their younger counterparts.
Boomers reported only minimal regrets about their choices, with only 5% lamenting the extension of their loan terms, whereas a larger percentage of Gen Z and Millennials expressed significant dissatisfaction with their mortgage-related decisions.
Conclusion
The ongoing housing crisis in Australia presents profound challenges for both older and younger generations. For retirees, soaring rents ultimately lead to poverty, exacerbating their financial plight as they enter their golden years. Meanwhile, older mortgage holders also grapple with the financial repercussions of rising interest rates, although they seem to face these challenges with more resilience.
Policy recommendations, such as raising rent assistance and re-evaluating mortgage frameworks, are crucial for ensuring that all Australians can secure stable housing, irrespective of age. The housing landscape in Australia requires immediate and comprehensive action to mitigate the risks faced by both current and future generations. The urgency of facilitating equitable access to housing cannot be overstated, as it remains a cornerstone of economic stability and societal well-being.
