What happens to the housing market if the young are locked out from buying a home, what are the impacts and does it really matter?
If the young are locked out of the housing market because in large-part they can never afford to buy their own home, then there’s a flow on effect that can have both short and long-term impacts. Not only on the housing market, be that buying or renting, but more generally across a wide range of varied social issues that can even spread to change the potential retirement plans of today’s baby boomers.
A Foundation of Growth
When you consider how in part modern economies rely upon the activity generated by the housing market, by household formation, then you can soon see how important it is for young people to be able to enter the market. Homeownership is an essential economic factor that drives consumption, taxes, builds community and creates future wealth.
So when we ask the question of what happens if people (the young) simply stop being able buying homes, then further sales are impacted, and the retail and manufacturing sectors slow and in-turn that impacts what price already established owners can get for their property. The dominos start to fall.
However, I think we can be assured that most young people still desire to own their home, they aim to save the necessary deposit and have access to the necessary loan funds.
We know that banks secure a great deal of the profitability from housing loans, so we need to aid and encourage young buyers. There’s plenty of room to argue that this encouragement should be by direct government intervention and assistance, by grant, loan discounts or shared equity. Whatever the vechile, it is important that young buyers receive the support and encouragement required.
Renting is Fine But …
We also hear a lot of talk about young people becoming a generation of renters, and for some this is fine. They like the flexibility and this might as help create a more mobile workforce. But in the long run we risk social stability and people renting are being locked out of the potential for capital gains.
Home ownership also builds community and helps young adults more generally look to start a family. We already know how parents value the stability of local childcare and schooling, and kids naturally feel happy and stable in a community and neighbourhood they know.
We also need to consider that if there’s a big gap created in the market, then those looking to retirement might find far fewer buyers ready to buy their homes. Most people see owning their own home as part of their superannuation and retirement planning.
Also renters are unable to benefit from the fact that the family homes is free of any capital gains tax or usually any estate duty. And pointing to a potential inheritance does not really solve this dilemma.
With so much at stake helping the young transition into the housing market looks a pretty worthwhile goal.