Another idiotic ‘Boomer versus Millennial’ housing debate

The AFR’s war on rate cuts took a new an ever more stupid turn on the weekend:

Baby Boomers and Millennials are trading blows about who is responsible for deteriorating economic conditions that weaken their chances of home ownership or retirement security.

Millennials allege profligate Boomers got a free kick from no university fees and plenty of jobs, and used low prices to build property portfolios and lifestyles that put holes in the national budget and the ozone layer.

Bitter Boomers claim Millennials would choke on their avocado toast if they had had to spend their youth paying 19 per cent mortgage interest rates and face retirement with returns on their bank savings of less than 1 per cent.

…Martin Loughran, 67, a retired truck driver, adds: “We’ve copped it at both ends of our lives. Record high interest rates home buying, and record low for retirement savings.”

Terrible as usual. Boomers are much better off.

First, interest rates in the late 1980s did not stay high for long and a home buyer back then got to enjoy the benefit of a massive drop in mortgage rates over subsequent years and a corresponding massive rise in house prices.

Second, as noted by the Australian Treasury last year, average income growth is expected to be the weakest in at least 60 years over the coming decade, which is going to make paying-off today’s mega mortgage far more difficult (see next chart).

ScreenHunter_354 Nov. 21 11.52

Third, when adjusted for inflation, real mortgage rates are above levels that existed prior to the 1980s – a time when many baby boomers purchased their homes (see next chart).

ScreenHunter_7795 Jun. 16 09.36

Fourth, while initial repayments on new mortgages are lower than the late-1980s and early-1990s, they remain well above the 40-year average (see next chart). Therefore, current housing conditions remain unfavourable, particularly given the coming shock to incomes.

ScreenHunter_7796 Jun. 16 09.37

Finally, the sharp drop-off in home ownership rates amongst younger cohorts is bonafide evidence of falling housing affordability (see next chart).

ScreenHunter_5349 Dec. 09 14.34

What should also become clear from the above charts is that the 1970s and 1980s was a dream time to purchase a home. Not only were homes highly affordable at roughly three times incomes, but a purchaser was in the fortunate position to have had their debts inflated away via high inflation and centrally indexed wage rises that outpaced the cost of credit. That versus today’s mass immigration wage crushing future which means none of the loan principle will get inflated away.

There is no comparison. Boomers were spectacularly better off and Millennials are screwed.


  1. What is a “real” mortgage rate?

    Also funny enough the UK isn’t lowering rates, saying that wage growth is high and therefore inflation is within target range. Seems to me that Brexit is delivering wage rises. Unlike mass immigration Australia.

    • The mortgage rate might have been 17% once, but the inflation rate was 15%. See my longer comment below about the massive advantage to boomers.

    • St JacquesMEMBER

      About the UK wages and immigration – that’s true for now as EU immigration has plummetted since the referendum result was announced, but don’t worry, the Tories are on to it, non-EU immigration, mostly thrid world ex empire, is surging and will put those temporarily happy UK workers back in their box shortly.

    • DominicMEMBER

      Yup, Brexit was meant to be a disaster for the UK — the economy is doomed according to ‘experts’

      Another day, another expert, another croc of shyte

      • kannigetMEMBER

        It will be once they actually exit. At the moment they are reaping the rewards of the fact that EU immigration has gone down and its lead to a short term uplift in wages. But once they start paying tariffs on all that EU trade the story will turn around for them.

      • @kanniget
        I (respectfully) disagree. Decentralisation is far better that CENTRALisation. The EU bureaucracy is just another mouth to feed — a big mouth at that. In fact, I can think of no bigger on this planet. Bureaucracies produce nothing — they are a drain on wealth. It’s a form of welfare for, um, bureaucrats. They do f*all, produce nothing but earn fabulous salaries and perks. Nice work if you can get it. The rest, meanwhile, slave away to feed this metaphorical ‘fat slob’. Think Monty Python and the ‘wafer thin mint’ scene. That’s the EU right there.

        So which European state is the by far the wealthiest and most successful? Oh, that would be (DEcentralised) Switzerland. Well, slap me with a wet kipper — what a surprise!

  2. I completely agree with this article and have been explaining why in much the same way here for years.
    I’m 68 years old and realise that high interest rates in my time meant that you couldn’t possibly pay more than two times your wage for a house.
    Of course the arguments used in this article make me wonder why the author has encouraged the RBA to constantly lower interest rates over the last seven years or so,
    especially when we’ve had the advantage of watching Japan fail miserably with this path years ahead of us.
    Those aged 40 and below have suffered greatly because of this action.

    • Yup!!!
      RAT rates have always been way negative. The resultant constantly mounting debt is reaching the pointy end after six decades.
      Insanity rules. Economic policy is always adapted to make it easier to have more and more debt rather than reform. MB just follows the same old tried and failed formula.

    • Spot on Doc. In terms of low rate cheering here, they do live in the real world so they either have mortgages themselves or at least a set of economics textbooks.

    • DominicMEMBER

      Here’s a recent quote that should help explain a few things:

      “The primary objective of fiscal and monetary policy (is) myopically focused on incentivising consumers to borrow, spend, and pull consumption forward … The front-loaded benefits of these tactics are radically outweighed by the long-term damage they ultimately cause.”

      This quote sums up precisely why policy makers do what they do: debt levels rise and the ability of consumers to service the debt falls — so policy makers lower rates — over and over and over again …. until the zero bound. As most of the GDP number is represented by ‘consumption’ and as a huge amount of past consumption has been financed by debt … the future is not looking rosy. No wonder pollies are so desperate to ‘open teh gates’

      • Michael Leibowitz – Real Investment Advice. It’s not in any way controversial — I’d say it’s screamingly obvious. Just nicely articulated.

        I’ve extracted bits and pieces from the original quote, just FYI, just for economy’s sake.

  3. There is one more point that advantaged the boomers, besides the absolutely correct ones you list. High inflation didn’t just make “real interest rates” little different to today, it also “inflated away the burden of the mortgage principal”. Incomes were not standing still as goods and services inflated in price. Mortgage principals, however, remained at whatever nominal dollar figure they started at, as the boomers nominal-dollar incomes rose something like 5 times faster per annum than the current generation can expect. And the mortgage principal was modest relative to the incomes. Boomers were sitting pretty after a single decade. The current generation will still be suffering the burden of a considerable chunk of their incomes being swallowed in mortgage servicing, not merely one decade in, but two decades in.

    It is simple mathematics to calculate the “percentage of total income swallowed by the mortgage” over its entire term. There is the principal, the interest rate, and income increases under the inflation scenario. What emerges from these simple calculations, is that virtually the only thing that matters is the size of the mortgage relative to income. If the mortgage is 3 times larger relative to income, its burden over its lifetime will be 3 times greater.

    AND this does not take into account movements in the interest rate; in the boomers case, it went down, as it was likely to because it was high to start with. The current generation are under a much heavier burden even at the extremely low interest rates, and what if it goes up, as is quite plausible sometime in the next 25 years?

    Many things Boomers did for their kids that they take for granted now, isn’t going to be possible now. Music lessons, dance lessons, orthodontry, holiday trips, “the mum taxi”, “allowances”, etc. I have been warning for years that the garnishing of household discretionary income by the mortgage rentier class, will be a kind of reverse Keynesian “anti-stimulus” to the consumption-driven economy, for a long time, and increasingly so.

    The sheer folly of the current “economic policy model” with its feedbacks that dig our mutual economic hole ever deeper and deeper, has me shaking my head in disbelief.

    • “The sheer folly of the current “economic policy model” with its feedbacks that dig our mutual economic hole ever deeper and deeper, has me shaking my head in disbelief.”
      “Current”??? It’s been in place for over 60 years but certainly got worse post the activities of Keating et al.
      The war is not between millennials and boomers although, on the face of it, it appears that way. The real war is between productive and non-productive.

      Most arguments for reform just push the non-productive agenda even further.

      The answers lie back in time.

      • Yup
        A phantom economy based on immigrate & build, immigrate & build, immigrate & build (all leveraged to [email protected]@@ry) while allowing PRODUCTIVE industries (that is: you wheel something solid out of the door at the end of the process which you can sell in other countries) to wither away. This phantom economy, only possible by our fortunate possession of lots of valuable dirt has had the effect of lulling all & sundry into assuming that Australia is somehow entitled to a better standard of living than the populations of countries competing to roll something out of the door…..
        Add that to the monstrous growth of public service jobs (we have 8 times as many of them per head of population as the Kiwis do) and their protected non-productive status (Australian road workers must be the least productive workers in history) and what do we get?

        The inevitable payoff. LIfe is competitive, shame Australia didn’t get it.

      • Median-multiple-3 housing markets were a norm until the 1990’s. That counts for a lot. But in many other ways, bad decisions were being made long before the 1990’s. It is remarkable to compare the trajectory of Australia and Sweden – they had similar nascent advanced industrial development in the 1940’s; for example, aircraft manufacturing and nuclear energy research. Look where Sweden is now. Imagine a counterfactual Australia….

    • DominicMEMBER

      Not only did Boomers benefit that way but the multi-decade decline in rates also unleashed a stock market boom which would have made anyone contributing to a Super fund between 1980 and 2000 very well off.

      Certainly, American boomers benefitted hugely.

  4. – But when the Millennials are screwed then the Boomer won’t be left untouched as well. They will feel “the pinch” as well.

  5. Only among uneducated people who don’t understand math one can reinforce belief that taking debt during low interestvrate periods is better than during high rate period.
    Someone buying a house now and paying 50% of income is likely to pay over 10 times anual incomes in total. Someone paying 60% of anual income in ’88 paid less than 6 annual incomes in total.

    • I’ve done calculations based on typical real life examples. Bear in mind that the 1988 annual income rose a lot faster due to higher inflation; and the term over which the mortgage actually got paid off, was a lot less. So the true difference is probably a lot greater than “6 times” versus “10 times”. If you state it as “proportion of aggregate income over 30 years” the difference will be dramatically worse. It might be 15% of the 1988-2018 aggregate income; it is more likely to be 45% of the 2018-2048 aggregate income. There are all sorts of implications to this, including suppressed “consumption”, a kind of negative Keynesian effect.

  6. St JacquesMEMBER

    The “boomers” used to waste way more money on really expensive stuff, especially cars, and foreign trips were relatively more expensive. And they had better paying jobs earlier because they were available. btw if millenials slashed the spendings of their relatively miserable discretionary income from their one and a half miserable jobs, our much bragged about services economy would collapse in a heap and would take the rest of the economy straight into a full on depression. But who cares about real arguments based on real facts not nostalgic anecdotes? Facts, logic and maths were never a boomer strength as a group. Self serving idiots, many of them.

    • St Jacques
      You cannot describe Jobs in those days as just “available”. You have to see the era for what it was. Housing was relatively cheap because the cities weren’t overcrowded to bursting point. Australia actually manufactured things. You worked in a factory. 48 hour standard weeks were not uncommon. I worked for Lucas industries & had to be on overnight callout (unpaid of course) 4 days a month.
      Blaming “boomers” for the effects of globalization (which few foresaw) is futile. No-one denies the effects of debt which now burden the younger generations. However, that is the effect of Fat Zebra syndrome (they don’t last long on the Serengeti) where the political demands were for more comfortable conditions of work, shorter hours, numerous allowances etc etc. Gradually we became unable to compete in the only game that mattered: manufacturing. Manufacturing paid for things. People talked about the balance of payments not mortgage debt.
      Our current predicament wasn’t some kind of futuristic planned boomer plot. I doubt anyone dreamed that PE ratios would be up to double digits. Housing wasn’t the be all and end all it is today. What everyone wanted was a flashier car… That was the zeitgeist of the day.
      In many ways our decline was inevitable. We were a spoiled country – the Lucky Country…

    • Another reality is that the consumption spending of the millennials has a lot more consumer surplus in it. Boomers look at the proiscuous use of I-phones, for example, and translate it back into the terms of their time when a toll call was expensive. In fact boomers were every bit as profligate with their non-essential spending, they just got a lot less for it. Movie tickets, fast food, holidays, whatever – just because the fun was lower-tech doesn’t mean it cost them less.

  7. Thanks to all this propaganda, history probably won’t even recognise that the Boomers had it easy.

  8. michael francis

    Wait until the boomers are stuck in nursing homes incapable of voting and earning a dollar and the millennials are Power of Attorney.

    • The Traveling Wilbur

      Errrr… aren’t most of the shut-ins members already posting comments from that boat?

  9. free education, cheap housing, high paying jobs.
    now they want to retire and do nothing and expect to get paid well for it. pensions and franking credits please!

  10. I don’t know, if you were to ask me I’d say Millennials need to grow a pair.
    Millennials need to define their group identity and take actions to further the interests of their group.
    Lets get back to basics here….Australia is not short of land there’s plenty of land for every Australian family to own a 1/4 acre that they call paradise….absolutely plenty of land. Millennials need to use what’s available they need to construct an enormous FU Boomer sign and mount it at the gate to their own paradise. when the council workers come to tear down their illegal “shanty town” they need to openly defy the law because this law is an ass. It’s these restrictive building laws that are the root cause of Millennials housing problems. Once you have the attention of every Australian (by defying the law) you need to change the law, introduce land taxes, tax speculative gains, control the moral narrative.
    But before you do any of these things you need to grow a pair…yeah it’ll need to be an enormous pair…but it’s still what needs to happen, it’s the first step today and it’ll remain the first step until it is taken.

    • Younger people, being more culturally idealistic and rational, are still finding out that they are blindsided….why don’t their rational appeals mean more? What is going on?

      They are not dealing with rational powers, but willful ones; a power-culture that uses rationale for its willful end. It is not evidence-based; at best, and in general, it is only interested in selective evidence that already supports its preferred outcomes, which in this case is the status quo.

      Younger people need to wise up about what is going on and, as you said, take back the moral and economic narratives, etc, whilst anticipating responses and “poisoning the well”, so to speak.

      • Exactly, societies collapse for a reason, the primary reason being that productivity becomes an impossible goal.
        The net sum of our cities labour is no longer something, it’s not even nothing, city labour becomes simply a cost that can’t contribute because the framework is broken. Real Productivity just becomes impossible because labour participation results in debt and more debt and yep more debt. Asset inflation is a terrible substitute for real world productivity
        The only good news is that every society that’s gone down this path before us has eventually recovered…it’s just a very painful and somewhat unnecessary journey

      • Yep it might have, but only in the sense that there’s no “I” in Team.
        Individually there are Millennials that are definitely still profiting from the status quo, however it’s the collective that is suffering. It’s much the same with a football team full of show-offs and ball hogs, they can look great on paper but be terrible team, one that just can’t ever seem to win.
        So yeah Team Millennials would probably benefit from conscription but only because they’d all know the true nature of the ba5tard that had his foot on their throat. Instead of individually cooperating hopefully they’d collectively string-him-up

  11. Boomers really do not (generally) want to hear anything you have to say.

    They are, generally, self-referencing Stoics and Pragmatists – even listening to you opens the possibility that something might be ceded.

    They are interested in gut feel and their own assessments of their own anecdata; they are, in general, not interested in actual comparisons. They are not interested in the Maths, only in maintaining the status quo, their perceptions of themselves, their achievements, and the narratives that let them keep what they have. Even the young Toxic Stoics are the same.

    It is interesting that Psychopath article last week, and it is relevant. In terms of Personality Type, and Cultural Personality, Psychopaths are really just slightly more extrememe Cholerics or Doers. The Boomer generation is, on average, characterised as Doer in their generational, cultural personality type. And every Doer has Psychopathic traits, just not necessarily enough to be called a Psychopath, per se.

    Their end-game is power and resources; the ability to assert their will at all times, and maintain a system of power to ensure it can always be asserted. It is their constant pre-occupation, a concern at all times, forever imperial.

    You, as a Thinker (the nemesis of the Doer), will assert facts and analysis, and appeal to reason. For the Doer, reason is merely a series of typically low-grade validities, strung together to convince other people to give them what they want, and to maintain the status quo (if it is already in their interest).

    Unfortunately, these things sum up many younger peoples’ interactions with Baby Boomer culture very well: your appeals mean nothing; your character will be attacked, and your reasons thrown out with your poor character.

    Do not appeal – it is a power game to them, whether they are conscious of it or not. Analyse, yes; assert and appeal to reason, yes; but do not wait for validation – instead, assert the counter-narrative as higher-quality and superior, and discard their narrative whilst repeatedly asserting your own higher-quality narrative. Wrap them up in tape. Pro-actively anticipate and counter, and poison the well.

    Younger people need to realise what they are dealing with, and it is not a dance with rationale, unfortunately…

  12. kannigetMEMBER

    Poor boomers had it tough, they not only had to front up a smaller percentage of their wages in savings but they also had higher term deposit rates to help get the deposit together. Now Millenials have to find a year and a half of wages to get a 10% deposit + stamp duty all without the assistance of interest in the deposit accounts.