Have baby boomers made a big investment mistake?

By Callam Pickering

The retirement of the very wealth baby boomers presents a unique challenge for the housing sector and Stevens may well be right: the ‘baby boomers’ have relied too much on investment property.

Fears that the property market has overheated have increased recently, with the International Monetary Fund voicing concerns a few months ago and The Economist recently publishing an article that showed that Australia has some of the most overvalued property in the world. “We perhaps have been a little bit over keen on investment property as our retirement plan,” Stevens said. “We may at some point be a little disappointed.

Some of those gains have reflected savvy investment but, for the most part, the high returns to housing reflect banking deregulation during the 1980s, favourable demographics, almost 25 years of uninterrupted growth and a host of inefficient government policies designed to boost prices at the expense of affordability and productive investment.

Unfortunately for the ‘baby boomers’ it will largely be the households who, by virtue of being born at the wrong time, haven't had the opportunity to accumulate housing wealth and cannot afford to buy property at existing prices.

House price growth has been strong over the past couple of years — albeit focused in Sydney and Melbourne — but the potential systemic risks of a prolonged housing downturn are very real.

It’s fair to say that Australians love owing property and, given strong growth in recent decades, property has been a great investment for a long time.

A recent paper by the RBA suggested that under those conditions, house prices could be overvalued by around 20 per cent (The great Australian housing rip-off, July 15).

The simple fact is that the only real precedent we have is Japan and they have been stuck with 0 per cent interest rates and falling house prices for the best part of 25 years.

As such, the impact of ageing on our economy and the housing sector is unlikely to be as severe but it remains an issue that investors should factor into investment decisions.

Read more here: Business Spectator

    

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