How are intergenerational wealth transfers impacting first home purchases?
5.8 million Australians received a cash transfer from a relative between 2002 and 2012
Recent analysis and media coverage suggests that the current house price boom means young Australians are likely to be financially worse off than their parents, and that more first-home buyers are relying on their parents’ wealth than ever before.
Just how many first home buyers are relying on intergenerational wealth transfers, either through cash transfers or through inheritance, and how are they benefiting?
Extent and impact of intergenerational wealth on home value
AHURI research published in 2017 examined HILDA data and found that between 2002 and 2012, approximately 1.8 million Australians inherited money on one or more occasions, and that 5.8 million Australians received one or more cash transfers from a parent or other relative. Over 2.7 million Australians were the recipients of multiple cash transfers—the average was three transfers.
The average amount of each inheritance was $79,000 per person, although the median value was much lower at $25,000. This indicates the distribution was strongly skewed, i.e. a large number of people received a smaller inheritance while a smaller number received a larger value inheritance.
Similarly, while the average amount of any one cash transfer was $4,600, the distribution was also skewed, with the median value being $1,000. However for those who received more than one cash transfer, the average cumulative value of cash transfers over the period 2002–12 was $9,000 and the median was also higher at $2,000.
Earlier AHURI research published in 2015 found that among those who inherited a bequest and subsequently bought their first house, the average purchase price across Australia was greater ($387,000) than for those who do not receive a bequest ($310,000). In addition, people who received a bequest were able to take out slightly lower value home loans ($213,000) than buyers who didn’t receive a bequest ($230,000).
Similarly, for those who received a cash transfer from parents, their purchase price was $354,000 and home loan value was $262,000, while those who did not receive a parental cash transfer had a smaller home purchase price of $308,000 and smaller loan value of $224,000.
This reveals that people who received a bequest or a cash transfer from parents were able to buy more expensive first houses with lower mortgages than households who didn’t receive any financial benefits from parents or relatives.
|Average home value||Average loan value||Average equity in home at purchase||Average of any one cash transfer|
|Received a cash transfer||$354,000||$262,000||$4,600|
|Didn't receive a cash transfer||$308,000||$224,000||NA|
Table 2: Home values for those who received an inheritance
|Average home value||Average loan value||Average equity in home at purchase||Average received per person|
|Received an inheritance|
(44.9% of home's value)
|Didn't receive an inheritance|
(25.8% of home's value)
Do intergenerational wealth transfers impact on housing location?
Although the HILDA data doesn’t describe whether beneficiaries were paying for bigger properties or more centrally located properties (or both), previous AHURI research from 2010 finds that households who were able to buy in more expensive middle and inner suburbs of large Australian cities achieved better growth in house value (i.e. greater capital gain) over time than those who bought in outer suburbs.
When lower-moderate income buyers purchase in outer urban zones they build housing wealth at a much slower rate than buyers in more expensive inner suburbs. The slower rate of capital gains in the growth zones is seen in the fact that 36 per cent of growth zone homes sold 4–5 years after purchase were sold at a loss while only 9 per cent of inner zone homes were sold at a loss. After 6–7 years 8 per cent of growth zone homes sold at a loss compared with 6 per cent of inner, showing that the slower capital gains growth had finally caught up with the transactions costs (such as stamp duty and agent fees) involved in initially buying and selling the property.
In conclusion the AHURI research suggests ‘if intergenerational transfers become increasingly important as a pillar supporting educational, housing and business start-up opportunities, policy-makers will need to heed the consequences for those children of less well-off parents who are bypassed by the intergenerational circulation of housing wealth.’