THE WEALTH OF AGES
Across large parts of the world, Generation Y is struggling to get a foot on the property ladder without help from parents or grandparents. Sophie Chick, Head of Residential Research, Savills Sydney, and Duong Duc Hien, Director of Residential Sales, Savills Hanoi examines the issue from the perspectives of two different markets.
Housing affordability has become a worldwide issue since the global financial crisis (GFC), partly because mortgage lending has been significantly curtailed by regulation. It is the younger generations, usually needing the highest loan-to-value ratios and loan-to-income ratios, who are most affected.
In developed markets, this has become evident. In Australia, the share of homeowners aged 25 to 34 is 45% (it was 58% in 1986). In the US, the current rate is 31% for under 35s, against 39% in 1995, while, in the UK, only 5% of housing equity is owned by the under 35s, who are now paying four and a half times as much in rent to landlords as they are in mortgage interest.
Sophie Chick, Head of Residential Research, Savills Sydney believed this generational effect goes beyond the GFC and “is symptomatic of how equity has become concentrated in older generations through a history of home ownership, mortgages and price rise.”
“Meanwhile, younger ‘equity have-nots’ find it increasingly difficult to access owner occupation, requiring large amounts of equity to fund rising prices and higher deposits. Generation Y (aka Generation Rent) is having to delay life choices such as marriage and parenthood, and one of the essential requirements to become a home purchaser is now a dual income, despite the low interest rate period seen post-GFC,” said Chick.
Things look different in emerging markets like Vietnam. According to the results of mid- term Population and Housing survey, home ownership ratio was 90.8% in 2014, slightly dropped from 92.8% in 2009. However, a closer examination indicates that this high ratio is the result of inheritance or significant financial support from older generation. Mr. Duong Duc Hien, Director of Residential Sales, Savills Hanoi believes that without this help, home ownership for under 35s is challenging.
“Admittedly there is a gap between young buyers’ income and housing price in big cities like Hanoi and Ho Chi Minh city. A mid – end 2 – bedroom apartment in Hanoi costs 140,000 – 200,000 USD, close to developed markets’ average while the average income in Vietnam is nowhere near,” said Duong. Family support is playing a large part in the financial capability of young home buyers in Vietnam.
One option for Gen Y in the rest of the world is the private rented sector. Around one-third of the population in Anglophone countries now rent, while those with a shorter history of widespread owner occupation have always experienced high rental rates (for example, Germany at nearly 50%).
However, owner-occupation rates in these formerly tenanted countries tend to be rising. It might be expected that they, too, will see a gradual concentration of housing equity among older age groups.
The policy challenge across the developed world is how to deal with a generation of renters unable to access housing unless they receive a legacy from older generations. Chick said: “Few governments will want to see Gen Y grow up into elderly renters, in need of housing support and rent subsidy at cost to the public purse. So, the focus will be on how to provide the secure, rented accommodation needed now while encouraging a new generation of owner-occupiers over the longer term.”
This will be a particular issue for developed economies, but not irrelevant to recently emerged ones, such as Vietnam. Chick expects that the scarcity of equity among first-time buyers and limits to affordability in many western countries will act as an effective ceiling to house prices and lower price growth will be the result. For Vietnam, Duong believes this issue will encourage buyers to use financial leverage, which is yet to be popular. The growth of Vietnam economy in coming years hopefully will increase the average income and bring it closer to housing price.