Generation locked out of property ownership faces retirement squeeze, warns UNSW economist

Australians priced out of home ownership could face greater financial pressure in retirement, reduced spending power and fewer opportunities to build wealth, says UNSW Vice-Chancellor's Professor Richard Holden.

The growing gap between property owners and those unable to build wealth from scratch affects more than the housing market alone, Prof. Holden said on The Business Of podcast. People who feel locked out of their financial future may be less likely to invest in themselves, their communities or the wider economy.

For younger Australians, the problem is structural. Sydney ranks second globally for house price-to-income ratios, behind Hong Kong, with Melbourne fourth and Adelaide ninth. Someone earning more than $190,000 a year—the top income bracket—could not afford the median Sydney house if they spent their entire income on a mortgage, Prof. Holden said.

The long-term increase in property prices cannot be separated from the amount Australians have been able to borrow, he said. Banking deregulation, changes to international capital rules and lower interest rates beginning in the mid-1980s enabled a "massive explosion" in borrowing capacity from the 1990s onward. House prices have grown over 30 to 40 years while incomes have not grown nearly as much.

Life milestones have also delayed. People take longer in education and delay marriage or household formation to later in life, making direct comparisons with previous generations misleading. Prof. Holden said the "compounding" effect of seeming to be behind previous generations while facing unaffordable housing creates a "double whammy" that makes people feel understandably pressured.

The consequences become acute in retirement. Australia's retirement system assumes people will own their home by the time they stop working. Those who do not own a home and rely on the age pension while paying rent face borderline impossible circumstances, Prof. Holden said. "If people are going to be paying rent [long-term], they're going to need a lot more in super than they think," he said.

Even those who manage to buy face reduced spending power. Large mortgage repayments reduce money available for other consumption during working lives. "People are spending a lot more of their money on housing, on their mortgage, and not consuming as much on other things," Prof. Holden said. "They've got less disposable income for that, and that makes that harder."

For those starting without inherited wealth or property, Prof. Holden said investing in skills that remain valuable as the economy changes was the most reliable path. "Invest in yourself, invest in your own skills," he said. For those working for employers, adapting skills over a lifetime was critical: "Those can't be taken away from you." Saving remained important even if higher tax rates made it less attractive than previously.