Bernard Hickey: Housing squeeze will widen generation gap

Photo / Janna Dixon

The great New Zealand dream is focused on family, home ownership, retirement and grandchildren. This life cycle of real estate is taken for granted, or at least it has been until recently.

The assumption is any hard-working young family can buy their first home, raise a family, buy a bigger home, pay off the mortgage, kick the kids out, retire and then downsize to free up cash for retirement.

But the housing boom from 2002 to 2007 has made it much more difficult. Home ownership rates have dropped, people are being forced to delay buying their first home and some are simply choosing to rent forever. Others have given up and left the country.

Now, an academic paper by Andrew Coleman, at Motu Economic and Public Policy Research, suggests this shift and the widening divide between young renters and older landlords is not an aberration. His paper Squeezed in and squeezed out: the effects of population ageing on the demand for housing demonstrates how this generation gap will get wider as the population ages.

Coleman concludes the young will have to pay higher taxes to keep the pension and healthcare systems going, making it more difficult to buy a home and service the debt. Meanwhile, older homeowners will plough their savings deeper into rental property because of the tax advantages, even after the changes in the Budget.

New Zealand risks becoming ghettoised into younger apartment-dwelling renters, and villa-dwelling old landlords. It would mean weaker families and a less cohesive population.

Coleman's conclusions are expressed in the haiku that accompanies Motu's research papers: "The young pay taxes/So the old live in mansions/They wanted when young."

New Zealand needs to have a debate about our taxation system, our pension system and the looming clash of the generations. Hopefully the Coleman paper gets people thinking and talking.

Prime Minister John Key has tried to shut down this debate by only tweaking the property taxation system and refusing to debate the idea of delaying the retirement age or altering pension entitlements.

If the main opposition party won't raise these issues, maybe the young and old people who worry about these trends should start the conversation.