On the Weekend TV3’s The Nation discussed what could end up being one of the defining issues of the next few decades, generational inequality. At its most basic it’s the idea that through various policy decisions older generations have effectively pulled up the ladder behind them on issues such as housing and infrastructure thereby making it much more difficult for younger generations. This is also something that’s not unique to New Zealand and the same issues are also being grappled with in many western countries.
First up on The Nation was Shamubeel Eaqub from the NZ Institute of Economic Research (NZIER) talking primarily about housing and how that it’s not just about home ownership but that it is likely to have other impacts throughout society such as pushing out poorer people further away from the city and the opportunities it can offer while saddling them with higher transport costs.
Following this The Nation hosted a debate (two segments) between a Baby boomers represented by former National MP Tau Henare, Former National Party President Michelle Boag and Otago University Economist Simon Chapple and ‘Team Gen X and Y’ represented by Morgan Foundation Economist Geoff Simmons, Green MP Julie Anne Genter and former Salient Editor Asher Emanuel.
Part 1
Part 2
In my view the contrast between the two groups was stark. The younger were much more calm and composed, they seemed to have come prepared with facts and were able to (or at least attempted to) use them. By comparison the boomers (with perhaps the exception of Simon) where shouty and arrogant and best summed up by Michelle Boag’s closing comment of “Don’t give me evidence”. Another thing I noticed was that quite often when trying to say that they had it tough the boomers were actually referring to the experiences of their parents struggling to get by which in many ways is one of the core points of the generational debate. Older generations worked hard to give their boomer kids a better future but those boomers are increasingly putting in place polices that make it difficult for younger generations to do the same.
The debate primarily focused on housing. As expected there were of the typical old chestnuts that often get trotted out in this kind of debate. These include:
- That parents help out their children to get in to homes. This was quite well addressed by Shamubeel in the first section who noted that it’s only good if you happen to be born to parents who own a house.
- That “Back in the 70’s/80’s we paid higher interest rates” came up fairly quickly but the reality is a high interest rate on a cheap house is still probably better off than a low interest rate on a very expensive house. It would be interesting if anyone has worked out the differences however a quick google search did find this from Stats NZ showing that we’re now spending over 2.5 times more on housing than we did in the past and given this is at a national level it’s probably even higher in Auckland
- Our (our parents) generation used to move further out and buy a small bach and live in it for a couple years while saving up money to buy or build something larger. One of the issues with this is that we appear to be seeing a correction in land prices back to more historical trends where land prices closer to town are much higher, that means buying a house further out and saving money can still be a futile effort. Regardless, if anything this generations version of it is buying a small apartment or town house. The problem is if we want people to have starter homes we need to enable the construction of small and cheaper dwellings.
That also raises another issue that was highlighted in that there is an element of regulatory capture in urban planning. Existing home owners in desirable areas have used the planning process to prevent any new housing to be developed in their neighbourhoods, thus driving up the value of their houses. Any moves to change that are met with strong opposition come election time so politicians are too scared to do anything.
There were a few other related issues too such as education, employment and superannuation.
As mentioned these issues aren’t unique to NZ. This popped up in my twitter feed yesterday showing much of the same arguments are happening in Vancouver.
Did you watch the debate (or have you now)? What did you think of it?
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As a Boomer, I astonished my parents’ generation by wanting to live in the inner city, close to where I had lived as a student. Many of them were buying new group houses way out, and thought used houses a bit like used clothes. Sullied. My luck was that good instinct – and of course that my first house next to the cemetery was triple my first salary… but at the time, that house was seen as inferior. We were slumming it, in the messy city, when the suburbs with the new houses were all clean and new.
Tau Henare and Michelle Boag – one an ex-National party MP the other an ex-president of the National party – were terrible selections. It should of been obvious they would both run interference for a government which is in denial about the housing crisis. Boag in particular did a great rendition of the aging shrieking harpie, a woman whose blinds constantly twitch as she watches those damn annoying kids playing next door.
All in all, a great opportunity missed by selecting a baby boomer panel that was not representative of it’s generation in anyway, and seemed designed to generate a lot more heat than light.
Journalism today is all about heat.
I absolutely agree Sanctuary. Michelle’s comment that she is a renter was just trying to divert attention. It is not that she rents because she cant afford to buy a house. It is because her house is on leasehold land and she cant buy the land so her comment was rather misleading. And Tou’s comment that young people should harden up, easy to say when you’ve never had a student loan in your life. Well I’m sorry but I’m concerned about young New Zealanders now, in ten years time, twenty years time etc. I’m 49 so I’m a GenX and probably why I don’t agree with the Baby Boomers. And the big point when these boomers talk about 18% interest rates, oh my heart’s bleeding for them, is that I’d much rather pay 18% on 200k than 5.something % on $800-900k. Also in a time when house prices were only 3 years average income compared to what they are now around 7 years average income. One argument should be that today it takes 7 years average income to buy a house, “Back in the day.” you could have bought two houses for that many years of your income.
Two problems with your assertions.
1. Back in the day with 18% and a $200K house, the “average” or median or whatever measure you use income was under $30K, not $50+K as it is now, so it was a multiple 7 then as well. Except all interest was Credit card debt sized. Yeah inflation rocketed along at 15-20% or so for a bit. But “real” interest rates were similar to todays.
2. And further back in the day, getting any finance at all was a real challenge – to be able to buy even 2/3rds of one house on a first mortgage.
Second and Third mortgages were common as well as first mortgages and had to go cap in hand to the bank manager (or work in a bank) to get one.
Living in a small house way out in the suburbs probably was fine when the good jobs were in suburban factories and the roads were uncongested. The world has changed though and for many reasons your opportunity is so much better in inner areas.
Younger people are willing to trade off size for proximity. But there’s little in the market. Thanks to baby boomer NIMBYs.
Stopped watching after 10 minutes, it was obviously a set up by The Nation to make it a political slanging match, stacking the boomer deck with two National Party hacks is just stupid.
Question I have for the boomers – who do you think will be buying your houses when you’re ready to sell in a few decades?
If the boomers stay put for too long, they may find that there is no big demand for their house when they finally need to move into a retirement home or full time care.
Because there is either not enough buyers from younger generations who either want to, or can afford to buy their houses.
Without a doubt the entire housing market, has got to be reviewed from the ground up, not only how we plan them, build them, buy them and sell them, but also, because as was pointed out today, the current super policies of successive government assume that retirees are home owning, and mortgage free.
While that might be true historically. Now with evidence from the banking industry (Co-Op Bank) today that parents are now routinely stumping up the additional money for their children to get to buy a house, and is the new normal. The “debt free retired” generation, may shortly be like the quarter acre section, a thing of the past.
And that has major implications for all future governments and for all generations from here on.
This housing issue has become like transport, implicitly bound up with land use and whole lot of other policies. And you do have to wonder if the “free market” can really provide for these multi-generational and long term outcomes, when all they look for is short term profits.
The truth is that regardless of which power is in party, whether interest rates are high or low, the majority of people (immigrants and locals) want to live in Auckland, and there is only so much of Auckland to go around. Same as any major city in the world. Not much anyone, any party or any legislation can do about it, it’s simply a fact of life. Some people made great decisions earlier on (by design or good luck) and can capitalize on them now. If people aren’t happy then find a place (outside of Auckland) that ticks the boxes. No point in whinging about it. Life’s not fair, never has been. No amount of debate or TV time will make one ounce of difference.
…party is in power….
Actually I think you will find local and central government policy does make a difference. And, accordingly, it can be changed.
There is no way Michelle Boag or Tau Henare represent my experience as a so called “boomer” home buyer. I saved for a home deposit in the days when there was no equal pay and where job adds were divided into men’s and women’s jobs. At 31 I had a good deposit and a good income, but as a single woman, the policy of the Bank I was with (the BNZ) in 1981 was to not lend $$$ to single women to buy a home. The other Banks were similar. My father had to countersign the loan – I was lucky that the family also banked at the BNZ – although I had moved out of home years ago.
I bought in an area which my contemporaries said was unsafe, the place had rats, and the floors were falling in. There was a motorway at the bottom of the road. 34 years later, I am still there. Fashions have changed and now everyone wants to live in Kingsland.
Well done on that one, Lindsey.
With that rental data in the last image, it’s for an “average” household so reflects the proportion of households that rent as well as the cost of the rent. It’s essentially the total rent paid by all households, divided by the total income of all households (including those which don’t rent). As per http://www.chranz.co.nz/pdfs/falling-rate-home-ownership-in-nz.pdf, 27% of households rented in 1976, whereas now it’s about 35%. I thought the difference was higher, but apparently not. So that only explains part of the increase. There may well also be a factor where these days more households pay “market based” rent rather than artificially low ones? Not sure, it’d be good to see more data on that.
I haven’t watched the debate but I’ll comment on Matt’s write-up.
Absolutely correct we need smaller and cheaper housing stock. I’ve been asking for a long time if there are some examples that can be mass assembled, or manufactured.
The comment about regulatory capture is true, also, but points out that there is also political capture in that planning decisions are always subject to political expediency. A planner can draw up a bad plan, but a politician can ruin a good plan.
We need a new approach to financing. Compared to the US at least, mortgages here are usurious. The nature of short term mortgages means that there is no predictability to your mortgage payments. In the US, if you get a 30 year mortgage at 5%, you pay a level payment every month for 360 months. The bank can’t change it. You can change it if rates go down (or change to a shorter term) through refinancing, paying fees that are quickly recouped through lower payments. And you can prepay all you want without a penalty. It’s a much fairer system, and cheaper than the NZ muddle, which is essentially an arbitrage game.
The US lending system is completely stacked in favour of borrowers, particularly in states with “non-recourse” bank lending. This is why the US has to have government-sponsored entities like Fannie May to subsidise banks, which in turn creates greater financial risks (i.e. the Global Financial Crisis).
It still works better than the NZ system – where all the major banks are owned offshore – for the mortgagee.
So in spite of all the criticisms of young people being rude and selfish, if you put some live ones on TV they tend to be pretty considerate. Their elders, on the other hand…
I thought Simon Chapple was the best of the “boomer” side – more considered than Boag and Henare, certainly, and more interested in speaking from evidence rather than anecdata.
But even there, I thought his argument had serious holes. On the one hand, he pointed out that most inequality happens _within_ generations. I.E. once you account for life-cycle effects (younger people starting to earn more as their careers progress) there isn’t much difference between generations. Fair enough. We’ll see how that goes as superannuation costs rise.
On the other hand, Chapple (and his cohorts) said that house prices weren’t an issue, because parents could help their kids into their first home. See the problem? Within-generation inequality means that not every parent will have the resources to do that. I don’t think saying “some children will inherit homes” is satisfactory or fair!
These people in positions of privilege are woefully out of touch. There are families in Auckland who spend 60% of their household income on rent. I don’t think they are going to get much help from their parents to buy a house…
As a boomer, I thought Henare and Boag’s behaviour was disgraceful.
They are both national party rejects. She is a self entitled old hag.
In Hong Kong, the rate of house price inflation is faster than people can save for deposit. Which means the young people are not going to afford, no matter how hard they save.
I think to some extent that’s also true here. Here in Auckland a somewhat feasible home for a family will cost you at least $500,000. With a 20% deposit requirement and 10% inflation per year, this amounts to an increase in required deposit of $10,000 every year.
That’s a very different situation from a situation with high interest rates, where the same house costs $300,000. In that case, that same $10,000 per year will get you the required deposit after 6 years.
The boomers had good points, but the lack of preparation for the debate put them behind. I’m a younger, have a student loan, brought a property in central city (so have a mortgage) without the help from the olds and without a partner, and actually tend to agree with the boomers on the fact the younger generation don’t know how to work hard. Many have gone on overseas trips, spend money weekly on nights out, eat out consistantly and then complain they can’t get into the housing market. (Socialising appears to be more important to this generation, which is fine but if they want to get on the property market, might be something they need to sacrifice). On the other hand there are problems we need to solve at the same-time, and this is where the younger have a leg up, they came armed with the facts and figures which won them the debate.
The younger definitely won the debate, however I still believe they need to stop blaming people and use the advantages we have in our day to their advantage to get ahead. The property ladder might not be for them, maybe business and stock market might be a better investment? Or maybe they don’t want the hassle and would rather spend their earnings on traveling and living in the now? We all have choices, but the property market is not impossible to enter at the moment. Money has never been cheaper. There are more ways to raise capital than ever before. Information and knowledge is more accessible than ever before. Travel has never been cheaper. Quality of life is higher than the previous generations overall. Education is more accessible than the previous generation. Many Many more.
Housing rules needs changing, rental rules need changing, and younger generation attitudes need changing. Everything contributes.
“The property ladder might not be for them…”
Yes, god forbid that a generation has different priorities than their parents’. They are entitled to make those decisions themselves. However, I have no doubt that eventually many will buy a house and “settle down” (over-rated), it just may take longer than it did for their forebears. If a generation can decide to delay having children, a generation can decide to delay having their own house. But the winds of societal expectations are blowing strong against taking that position as a consideration of policy.
@kleefer:
“…These people in positions of privilege are woefully out of touch…”
I actually this is a really good point. Those who grew up pre-Rogernomics are completely out of touch with the post-Rogernomics realities in this country, despite largely also of being of the generation that enacted the Douglas “reforms”. How you bridge that enormous psychological and cultural chasm I don’t know, but there is definitely two utterly different versions of New Zealand going on out there.
Same as it ever was, if you compare the “pre-Boomer” generation (that had the depression, WWII etc) with the Boomer one that followed, you can see the same sorts of differences.
The concept of a “fair go” which everyone harks back to as a characteristic of what NZ stands for, was in the olden days only applicable to a white, male pakeha.
Everyone else was excluded.
Thank goodness we’ve moved on (somewhat).
So yes, not so much differences in housing, then but certainly in attitudes to those who weren’t basically as above, Pakeha and male & so were “different” (like LGBT, Maori, women, “foreigners”, hippies, protesters, university students etc).
Things like marriage, equality of the sexes, social welfare, children outside of marriage, women/minorities working in the workforce – all of those were seen/handled completely different by the prior generation as compared to the Boomer generation.
So while many of those prior inter-generational issues have now been resolved to some degree, newer issues have arisen to take their place.
And yes, as it was then, those in power are out of touch with the next generation. Doesn’t make it right, but does add some perspective to the mix.
Who are these people paying $86 per week in rent? That image is not straightforward.
I presume that it means that for people paying rent, their proportion of spending is much higher than 8.6%, and for those not paying rent, their proportion is 0.0%.
And from the UK Guardian yesterday, the same topic: When did houses stop being homes? http://www.theguardian.com/lifeandstyle/2015/jun/07/when-did-houses-stop-being-homes-eva-wiseman
I completely agree that Henare and Boag were disgraceful on TV3 Generation Rent debate.
But the way TV3 had structured the debate was wrong.
The dividing lines in NZ society is not between baby boomers and the younger generations (X,Y, millennials) it is between the landed gentry (rentiers) and generation rent as Sharmubeel said.
It certainly isn’t between the university educated of the past versus the current. The university educated are likely to find one way or another to do well.
The dividing line is the people falling out of the housing market who previously wouldn’t. This is likely to be those on median incomes -healthcare assistants, some tradesmen -painters and plasters, retail workers etc who will not be buying homes ever. Many of the younger nurses I work with are in shared rentals, some into there 30s. Then further down the scale there are others who have some setback in their lives and fall out of the rental market, ending in informal accommodation -unlined sheds, garages, caravans etc.
This can effect all ages and compared to previous years (pre 1990) every age group has had a drop in home ownership. The biggest drop is for the younger groups though, that is where the problem is so obvious. But if an older generation has a setback it can be very hard to get back into the housing market. Also the likes of the Retirement Commissioner is very concerned about growing elderly poverty because retirement schemes/Super is only really adequate if you own your own home.
The dividing line is really between old fashion labour voters -the workers and old fashion National voters -landowners. Not the well educated inner city elite.
Please Brendon, don’t lump me in with the baby boomers they are not generation X.
http://cdn.theatlantic.com/assets/media/img/posts/2014/03/generations3/30ebe0c8d.png
Oh I see you were not, thank goodness for that, would hate for anyone to think I had the same world view as Michelle and Tau. 🙂
Off the wall housing question: Does Auckland have a houseboat district, like those in Vancouver et al? Should it? Could it?
Interestingly it is only housing that’s got more expensive. Everything else on the Statistics NZ site – meat, clothes, alcohol – has got way cheaper.
Cars and electronics are way cheaper now too.
On that note, I heard a story about my great-uncle today. When he got married to my great-aunt in 1948 or so, the condition was that he built her a house. So he went to buy a section out near New Lynn. He had only saved 93 of the 100 pounds that he needed to buy it… so he sold his guitar to raise the other 7 pounds.
No that Stats measure was how much out of every $100 goes towards different things, i.e. the percentage of our spending. We’re spending a higher percentage of our money on rent which means we will spend less on other things. Of course some things have become cheaper and clothing would almost certainly be one of those.
I wonder how PT fares have changed in real terms since 1974? Upwards I would imagine.
The Boomers also by-and-large had full employment. And back in their day, going to university was optional, as opposed to today where it’s almost a requirement to be in the middle class due to credential inflation.
Things have gotten to the point where what Prof Eaqub describes as the landed gentry is too powerful for any politician to stand up to. And for housing to be truly affordable, it would likely require an involuntary transfer of wealth, which seldom happens quietly. In the absence of political will, the only thing that will put the landed gentry in its place is a politico-economic meltdown such as a housing bubble burst or the outbreak of war.
The boomers shouting down the kids. Wouldn’t want them as parents. Boag commented that Tau didn’t go to University. I don’t think he would have been denied if he’d wanted to and it would’ve been practically free. They dismissed the fact that students today are saddled with a student debt to pay off before they can consider saving for a house. Many do not have parents in the position to help their kids on to the property ladder and many young people want to do this on their own.
I guess no-one ever wiped your bum Tau, and Boag’s strategy reminds me of the leadership line from Blackadder. “It’s all down to shouting. Shout, shout, and shout some more”. Maybe stop resisting intensification for the sake of younger generations.
Asher Emanuel was very impressive with thoughtful comment. He placated Tau at one point. Take some pointers, Boomer panel. p.s. I’m an old fart myself.
Interesting the boomers they said you could live in a garage while you saved up for a house. Can’t do that now days of course, resource consent forbids living on a property without a major dwelling on site.
People in South Auckland live in garages.
The defining issue of the next few decades? Definitely.
Thanks Matt L.
Generation rent vs. landed gentry
I am looking forward to how this develops on transportblog.
I’m 30 and I’ve lived in a caravan on my parents property for the last 12 years just to save up enough money to buy a house. I have just bought a house and I just decided to rent it out and stay in my caravan until I save up to buy another house. Maybe by then I’ll be sick enough of my parents to move out. It’s not easy but it can be done with lots of sacrifice. I worked all through uni, borrowed only for fees, lived at home, took long PT commutes, made my own meals, drank tap water, didn’t buy new clothes or travel or eat out or go to movies etc. It’s not easy and not for everyone, but it can be done and has paid off.
How fortunate you are that it’s an option to park a caravan out the back of your parents’ place and live in it. Rent free? Couldn’t do that with my parents as they’re property caretakers, and couldn’t do that with my wife’s parents because they live in a townhouse with no private section whatsoever. And even more fortunate that you had the option to live on with your parents; many people can’t, for whatever reason, or if they can it’s on a fully-commercial basis because their parents certainly cannot afford to do it from the kindness of their hearts.
Michelle Boag – Poor little rich girl.
“•Our (our parents) generation used to move further out and buy a small bach and live in it for a couple years while saving up money to buy or build something larger. ”
I (my parents) lived in a variety of homes, big, small and flats sometimes in the 70,80s. One problem now is there are very few SMALL houses to buy as your first home . (Anyone got the stats here on smaller houses and age of houses)
My first home of my own was seaside of east coast bays drive for $217,000 in 2002. This was 83sq metres. Not sure of average/median size of houses on market now.
Inequality of life bases between generations may be an emerging problem in the future. Today’s younger generations may face difficulties in accessing housing, education, health care, and employment, when prices are rising and incomes are not increasing accordingly.