Briefing paper

How do intergenerational transfers affect housing and wealth?

4 Dec 2015

Home ownership is valued not just for the housing it provides but also as a means to accumulate wealth over the life-cycle. However, there is evidence that younger generations are making later transitions into home ownership and increased numbers not entering at all—this is not just among low-income earners but also middle-upper income Australians aged 25–44. Even so, parental transfers—those occurring while parents or relatives are alive ('inter-vivos' transfers) or after they die ('bequests')—might have an important role in overcoming intergenerational inequities by assisting people to enter first home ownership.

This study used longitudinal data from the Household Income and Labour Dynamics Australia Survey (HILDA) to model the impact of transfers on the likelihood recipients enter home ownership and its impact on overall distributions of wealth.

The study found that receipt of a bequest increases home ownership rates among beneficiaries by 4 to 8 percentage points, and outright ownership by 10 percentage points compared to non-recipients. The probability of entry into first home ownership increases at or just after a bequest is received. Large inter-vivos gifts (over $5000) are also associated with transition into home ownership. Bequests and inter-vivos gifts are also associated with recipients purchasing higher value housing compared to those not receiving such gifts.

While inter-generational transfers of this type appear to be beneficial for the younger generation that receive them, it is clear the net effect is regressive for overall wealth distribution. This is because renters are less likely to receive transfers compared to those already in home ownership. This suggests that there is a clear potential for housing transfers to play a role in wealth becoming more concentrated over time.

The findings help initiate a discussion around how large wealth holdings held by older generations that have benefited from increasing house prices might be unlocked for the benefit of younger generations while relieving pressure on government budgets. However, it also highlights the importance of tax and transfer policies in redressing inequities within generations, including how to target those groups that might miss out on intergenerational transfers.

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