Did Boomers or Millennials Have a Harder Time Buying a Home? We’re trying to answer this age-old question

“You know what’s wrong with the smashed avocado generation?”

I was filming a story on a suburban street about young people struggling to enter the housing market when a woman unpacking groceries in her driveway asked about my subject.

I knew I was in for it when she hit me with that rhetoric.

“This generation is greedy,” she concluded.

On the other side of the footpath, it’s not uncommon to hear millennials slandering their parents for negatively preparing their way into retirement and driving up prices for today’s buyers.

So which generation had a harder time buying a home?

House prices today are much higher than wages.

In Millennials court, we argue that buying a home is much more difficult these days because real estate price increases are much higher than wage growth.

During the pandemic alone, the median real estate price shot up 26 percent… yes, more than a quarter.

It’s hard to pinpoint exactly why this happened.

We’ve had years of credit deregulation, government stimulus, tax breaks for investors, and, more recently, record-low interest rates.

My colleague, Nassim Khadem, wrote recently about how previous governments have created this situation.

We have seen housing change from a human right to a wealth creator. About two million people own investment properties today.

The Grattan Institute calculated that 30 years ago, the average house price was only a few times higher than the standard annual income.

Now it’s 8.5 times the median income, according to CoreLogic data. That’s an increase of 6.8 percent in the past two years alone.

CoreLogic says it takes 8.5 times the median income to pay off a $750,000 mortgage.

Your standard deposit for a home loan is 20 percent.

At current prices, it would take someone on average income about 11.5 years to save that chunk of money.

Given this, it is unsurprising that we have seen the emergence of schemes to get people mortgages with lower deposits.

The financial industry has created a secondary lender by selling people insurance on loans with a low deposit guarantee, plus there are federal schemes in place to help you avoid this insurance.

You also have the so-called “Bank of Mum and Dad,” where you use your parents’ property to buy… more property.

And this election, we’ve been proposing shared share plans and supercharged deposits.

Specialists have noted that many of these low-deposit mortgage schemes only help if you already have a decent amount of cash or intergenerational wealth.

This adds to the concern that we are heading for a wealth transfer from property-owned baby boomers to their children through inheritance.

This will only widen the gap between families who own a home and those who don’t.

But what about interest rates?

Of course, it can be not easy to get a deposit together today.

But can you imagine paying 17.5 percent of the loan once you get it?

This is often the point you hear from people who bought in the 1980s and early 1990s. Take the words of self-funded retiree Grant Agnew, whom I spoke to recently for ABC News.

“I got one of the very last mortgages — in 1985 — with a protected interest rate of 13.5 percent,” Grant told me.

“That’s unimaginably high for most people these days.”

Even an interest rate hike was something this generation of borrowers had experienced only last month.

When the Reserve Bank raised the spot rate from a historic low of 0.1 percent in May, it was the first time in 11 years. And even then, it stayed super low, at 0.35 percent.

However, high-interest rates on your loan are still acceptable if the base loan is lower.

This graph from the Grattan Institute shows how much interest people paid on home loans at different times over the past decades relative to their disposable income.

As that chart shows, the greatest interest burden was in the mid-2000s, during another real estate boom when there were warnings of massive defaults.

Interest rates are only part of the story.

We also know that around 1990, interest rates remained shockingly high for only a few years before falling.

So to understand how much of a burden a home loan is to one’s finances, you also need to consider its repayments over the entire term of the loan.

The Grattan Institute did this modeling exclusively for ABC News.

Essentially, that chart shows that people who bought in 1990 initially had a harder time paying off their mortgage. The repayments chewed up nearly 40 percent of their income.

But the burden on them dropped within five years.

Compare this with people who took out mortgages in 2021.

Granted, they start with a lower burden, but it’s a slower burn to financial relief.

To steal a line from my editor, one generation had to tear off the band-aid painfully but quickly, while the other had a festering wound. (And they said buying your first home was the Australian dream?)

There are many other factors to consider in this debate.

Inflation was worse last century, driving up the cost of living, although wage increases were also much higher, and the real value of your debt shrank faster.

Unemployment rates also reached double digits in the early 1990s and remained high for years, leaving some people unable to buy.

However, we also know that the current generation faces increasing labor instability. That makes it harder to get a loan.

It also makes it harder to get a raise, and the lower inflation times — at least until recently — meant that the real value of debt hasn’t fallen nearly as fast as it used to.

However, deregulated lending has produced cheap cash.

Self-funded retiree Grant Agnew thinks mortgages are “more terrifying” today than when he bought in the 1980s and 1990s. (ABC News: Curtis Rodda)

Our retiree, Grant, told me he doesn’t think he had too much trouble buying another property in the mid-1990s.

“To buy a modest home in Canberra, I borrowed $85,000 at 6.75 percent,” he says.

“That was with almost no cash in my bank account, and it was after I’d only had a decent-paying job for three months.”

Ultimately, homeownership declines

Another way to look at this story is to look at the loan rates of first-home buyers throughout history.

People may complain that it is difficult to get into the market, but are they still reluctantly managing it?

An RMIT Fact Check published this week found that many first-time homebuyers entered the market in early 2020 when interest rates fell, and premiums were offered during the pandemic.

If everything is worked out for population growth, this is the story we’ve been getting over the decades.

Rates for new entrants were higher in 2009 than during COVID-19.

A report released last week by Per Capita found that Australian homeownership was declining rapidly, especially among those under 40.

According to current trends, less than 55 percent of people born after 1990 would own a home by 40, compared to a historic high of almost 72 percent.

And we know that more people are renting.

“If you don’t own a home by the time you retire, you’re at greater risk of financial stress and poverty when you retire,” says Brendan Coates of the Grattan Institute.

“And so we have a ticking time bomb.”

What will happen next?

Whether you think the answer to this debate is unclear or definitive, those dots on the Grattan Institute’s models of interest payments are still troubling.

People who just bought are returning to 2006 with just a few percentage points of rate hikes.

And that’s the minimum the Reserve Bank would want to do to get interest rates back to “normal”.

To his credit, our retiree, Grant, recognizes how difficult this situation would have been in his day.

“I don’t know who had it harder, but today’s mortgage borrowers have it more terrifying,” he says.

“A 5 percent rate hike in the ’80s or ’90s wouldn’t have spelled immediate ruin.”

It is unclear what rising rates will affect real estate prices in the coming years.

Some economists — and even the RBA’s economic models — predict real estate prices will fall, but their crystal balls are more likely to be wrong.

Even if prices fall, things may not get any easier for people who haven’t bought yet, as they can be offset by rising interest rates that will make the mortgage burden about the same.

As it stands, you can forgive some millennials who haven’t bought yet for feeling jaded.

Take the words of a 28-year-old single mother, Shana.

I thought of her on that suburban street when the middle-aged woman with her errands told me that this generation is “greedy.”

Shana has a young daughter and wants to buy a house. (ABC News: Peter Drought)

Shana is desperate to give her young daughter a home of her own. But she lives mostly bill-to-bill on a low income, and she has no idea how she will ever get a deposit together in today’s market.

“The interest payments would be so high over such a long period. And then, to even save the down payment,” she said.

“It just goes in circles.”

Perhaps some millennials live a “throw-away” lifestyle and wonder why they don’t have the money for a mortgage.

But in Shana’s case, she’s not out for a long brunch.

“I’ve come to terms with renting for the rest of my life until maybe I inherit something. Or marry someone very rich,” she jokes.

“I honestly threw the Australian dream in the dustbin.”