Have your say: Does New Zealand have a problem with intergenerational wealth transfer?

Have your say: Does New Zealand have a problem with intergenerational wealth transfer?

By Bernard Hickey

I've written regularly about the issue of intergenerational wealth transfer from the young to the old as the population ages in the wake of the property boom.

My view is that the property boom created a situation where those older people owning property before 2004 received the equity gains from the boom while those younger home buyers entering at the bottom took on massive debts to get home ownership. Those who didn't get in by 2007 are essentially locked out in the big cities, without big gifts or help from their parents.

That transfer of wealth from the young to the old looks set to be worsened by the coming surge of public health and pension spending on baby boomers as they retire. That spending too will be financed from the taxes of the young as they go through their working lives, assuming of course they stay in New Zealand.

This intergenerational transfer of wealth is being locked in by decisions taken by today's politicians, most of whom are in the generation set to benefit from this shift of wealth.

I wrote in My Top 10 on June 10 about this issue when referred to work done by David Willets in the UK and Anatole Kaletsky in The Times..

Also here in my Top 10 on June 28 when referring to a piece by Michael Blastland on BBC Radio 4.

There was also a similar debate stream in this Top 10 on July 29.

Are you interested in this topic? Do you have some views you'd like to share. I welcome your thoughts below.

Also, freelance journalist Denis Welch is writing a magazine feature about intergenerational issues. He would like to get in touch with you about a possible interview. He has already interviewed me for the article.

Please email him at denis.welch@clear.net.nz if you're in those Generation X or Y age groups and you have a point of view you want to get across.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Here's more info here from a BIS research report on how real house prices face a headwind of potentially a fall of 35% plus in the next 40 years as babyboomers are forced to cash out of their assets to pay for their retirements and healthcare

http://www.interest.co.nz/news/bis-forecasts-ageing-population-could-hal...

cheers

Bernard

Just to put some figures on the scale of various types of debt.

Mortgage debt in New Zealand sits around NZ$190 billion.

Credit card debt is a round NZ$5.2 billion.

Student loan debt is around NZ$11 billion.

cheers

Bernard

Kate,

Good question. No I haven't seen the demographic spread. My speculation is that the bulk of the NZ$100 billion debt fell on late entrants to the boom from 2002 to 2007, with a good chunk being taken on by babyboomers gearing up into rental properties.

But you're right. Hard to know.

Either way, though, the debt will be passed on to those still alive in 2040/2050.

Anyone else have some thoughts?

cheers

Bernard

What percentage of total FDI to NZ is invested into mortgage debt?

Les,

Yes. The property boom is a huge part of the problem. It has been the mechanism to transfer the wealth from one generation to another in the form of one generation taking on debt and the other receiving those debt proceeds in the form of home equity (passing through the bank balance sheets of course).

I'm in favour of a land tax to at least capture some of that wealth transfer and redistribute it (or at least pay for the upcoming pension and health care bulge)

cheers

Bernard

Great ideas.

You're right. I need to keep pushing it. I do get grief though sometimes for flogging dead horses and 'going on about it'.

Great idea on Xena. I'm calling Lucy Lawless now.

I'll buy her a coffee.

cheers

Bernard

Kate et al,

Here' an interview with Andrew Coleman of Motu I did back in May on some research he did on housing and ageing.

His thesis is that Baby Boomers will actually stay on and live long in their big houses and use them as bases to buy lots of rental properties. He sees a skewed population where the wealth sits with landlord boomers and the Generation Xers and Yers are stuck in increasingly small rentals.

Why the young will increasingly have to rent and pay high taxes

http://www.interest.co.nz/news/why-young-will-increasingly-have-rent-and-pay-high-taxes

cheers

Bernard

Fungus,

I'm 43 and have plenty of equity after my wife and I bought a house in Sydney in 1997 and then used  that equity to buy a house in Auckland in 2005. I'm one of the lucky ones.

You're right I am one of the beneficiaries of the boom.

The problem is I have to make sure there are high paid jobs for my two daughters so they stay in New Zealand and bring up the grandkids here.

We'll see. Doing my bit.

chheers

Bernard