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Who had it harder to buy a home?


Do Gen Z and millennials have a harder road to home ownership compared to baby boomers and gen X?

Which generation has had it harder? It’s the perennial question when it comes to housing affordability in Australia. As interest rates have risen in 2022 and 2023, there has been some discussion in the media on whether baby boomers actually had it harder to buy a home because rates were much higher in the past. Other stories have countered that, in fact, millennials and gen Z have it much harder right now because of the rise in home prices and low wage growth.

Comparing the affordability across generations is always a difficult task. One reason is that a generation includes people with a range of ages who earn more as they get older. To account for this we have taken 20–60 as the age bracket for when each generation is most likely to have paid a mortgage. This provides a range of incomes and home prices to average out over a person’s life. Another problem is that the value of money changes over time. For this we have analysed interest rates, home prices and incomes adjusted for inflation to work out which generation has it the worst from an inflation-adjusted perspective as well.

So, what counts as having it the worst? One measure is how much of one’s salary it takes to purchase a home. The first step to buying a home is to save for a deposit. On this measure gen Z currently has it the worst. That’s been true since 2016, when the oldest in gen Z turned 20, paid up to 139% of their average annual salary for a 20% deposit. Millennials are not far behind in the struggle. Since 2000, when the oldest millennials turned 20, they have required 122% of their salary for a deposit. This is in contrast to gen X who since 1980 required only 94% of a year's salary for a deposit. However, this is all in stark contrast to baby boomers. From 1959 to 1989, they only had to shell out 35% of their annual salary to save for a deposit.

The second step to buying a home is to actually pay off a mortgage which includes the cost of the home and the interest chart. When we look at the total cost of a mortgage over 30 years, gen Z and millennials and gen X all face or have faced paying up to 11 times their average annual salary for the total cost of a mortgage for a home. Baby boomers on the hand only had to pay up to 4 times the average annual salary to pay off their mortgages.

"Interest rates were higher in our day!"

It is true that interest rates were much higher for baby boomers and gen X than they currently are for millennials and gen Z. For instance, the standard variable interest rate hit 17% in 1989–1990. This means baby boomers faced an average interest rate of 9.2%. This is the highest among all the generations, with gen X facing a 9.1% interest rate, millennials paying 6.5% and gen Z paying 5.3%.

Despite facing lower interest rates compared to baby boomers, the main contributor to gen Z and millennials needing larger salaries to buy a home is the rise in house prices which has offset lower interest rates. The average gen X, millennial and gen Z have had to pay or will pay far more in interest on their home loans due to the increase in home prices. Gen X were in the worst position, having to pay 7 times their average salary in interest over the life of their home loan. Millennials and Gen Z face paying 6 times their average salary in interest. Baby boomers on the other hand only had to pay 3 times their annual salary in interest charges.

"Our wages were worth less in our day!"

Although inflation rapidly increased in 2022, it was higher in the past. For instance, CPI inflation hit 17.7% in the March quarter of 1975. However, even adjusting for inflation, baby boomers had it easier than proceeding generations. Baby boomers required an annual salary of $15,290 on average to pay a home loan, equivalent to $98,299 in today's dollars.

Interestingly, when adjusted for inflation gen X came out the worst having had to earn $138,217 in today's dollars to afford a home loan, which is the highest among all the generations. Gen Z comes in second having to earn $120,541 in inflation-adjusted dollars since 2015 to afford a home loan. Millennials have it slightly easier, requiring $112,850 in inflation-adjusted dollars.

So does gen X have a valid claim for having the steepest path to homeownership? Not quite. The value of incomes also change over time. When incomes are adjusted for inflation, we find that millennials and gen Z have the worst inflation-adjusted average salaries, of $91,493 and $97,156 respectively. In today's dollars, baby boomers and gen X, enjoyed incomes of $214,002 and $112,690 respectively. This is why when adjusted for inflation gen Z, millennials and gen X are all paying 18 times their annual salary for a mortgage, compared to only 7 times for baby boomers.

How did we get here?

Why have gen Z, millennials and gen X found it so hard to afford a home compared to baby boomers? On the demand side of the equation, net overseas migration has doubled since 2007 from roughly 100,000 new migrants per year to 200,000 per year. These are families that require homes. On the supply side, the number of new houses completed per year has largely remained between 20,000 and 30,000 since the 1970s. Despite strong growth in unit and townhouse construction after 2014, this trend reversed in the years leading up to 2020. The underlying causes of these trends are complex with economists citing excessive regulation of zoning, but also the over-reliance on private property developers to supply housing stock.

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