Could this population transformation wreak havoc on our property investment market?
Blogger: Kevin Lee, founder, Smart Property Adviser
You're probably aware that our 'ageing population' has been the number 1 topic on everyone's lips throughout 2015.
When Joe Hockey released the latest Intergenerational Report in March, everything that anyone needed to know about how Australia could ‘look’ like 40 years from now was in there.
Right now though, we have another significant generational trend unfolding, which is likely to further aggravate the problems facing Australia for the next 30 to 40 years.
And, as property investors, these issues will have a massive impact on what we buy now and in the future. This little known trend is, of course, 'permanent departures'. It is most prominent amongst our Gen Y kids; and very soon their kids and grandchildren.
Basically, we're losing our Aussie kids to the 'global village' – they grow up, enter tertiary education often with government funding or HECS support to gain their uni qualifications, and then leave our shores to live and work overseas.
In fact, McCrindle Research reported that in 2012 (latest figures) 257,258 Australians left permanently. In my own circle of friends, at least five of the kids are now based overseas... this trend is happening whether we like it or not. How is this a problem?
Well, as our baby boomers exit the workforce and tax base in their millions, the group below – Gen X as they’re known – are supposed to step up. In reality though, as a group they will struggle to replace both the income and tax contributions of the generation before them.
Gen X need help to fund the retired boomers, especially as the majority of these retirees will rely on a tax-payer-funded pension. ABS fact: In 2013, only four per cent of retirees were self-funded.
Simply put: Australia can't afford to lose any more tax payers from the Gen Y and Gen Z groups.
How is this a problem for property investors? Any smart investor knows the Australian property market is heavily reliant on the strength of the Australian economy. In a nutshell: property values rely on employment and income. No jobs = no future.
And it’s the underlying strength of Australia’s economy that will be severely tested by millions of boomers exiting the workforce, tax base and compulsory super system (as contributors).
Add in a few hundred thousand young Aussies finding their way elsewhere in this world each year, and it could well be the recipe for economic disaster this 'tiny' country doesn't need.
We saw strong capital growth during the 50-year reign of the boomers – and as a result Australians at large came to believe the urban myth that "property doubled in value every seven to 10 years".
Yeah, some people got lucky, but it's like playing at the casino – one winner for every 10 losers. House wins 90 per cent of the time – sometimes more!
Especially with our demographics undergoing such a rapid transformation, if there aren't enough people in the workforce (and tax base) stepping up to replace the boomers, we could see that capital growth as an ‘entitlement’ no longer exists.
Australia: It's time to make smarter property investment decisions if you want to taste success in the foreseeable future.
About the Blogger
Kevin Lee of Smart Property Adviser is regarded by many as Australia's most trusted property investment adviser. Since 1999, Kevin's been the go-to-guy for people when they need honest finance and property investment advice and guidance.