Bank of Mum & Dad creating “unequal housing market”

Last week, Tarric Brooker posted some stunning charts at News.com.au, gleaned from Digital Finance Analytics surveys, showing the record rise in financial assistance from the ‘Bank of Mum & Dad’, which is helping to fuel the boom in first home buyer (FHB) demand and Australian property values.

Just prior to the pandemic, only 8% FHBs were receiving support from their parents – the lowest proportion since 2011. However, this has since soared to more than 60%, meaning a record share of FHBs are now receiving financial assistance from their patents:

Bank of Mum & Dad borrowing

A record share of Australian first-home buyers are now receiving financial assistance from their parents.

Moreover, the average amount of financial assistance received from parents has also hit a record high of nearly $90,000. And based on the the average FHB deposit amount of $106,700, the Bank of Mum & Dad is, therefore, providing an average of 84% of the total required deposit for the circa 60% FHBs receiving such parental assistance:

Bank of Mum & Dad average assistance

The typical first home buyer tapping the Bank of Mum & Dad received $90,000 in financial assistance.

In turn, those FHBs that have tapped the Bank of Mum & Dad have only needed to come up with an average deposit of around $17,000 – well below the $106,000 that would have been required without parental assistance.

Dr Chris Martin, a senior research fellow at the UNSW City Futures Research Centre, argues the rise of the Bank of Mum & Dad is adding to inequality in the housing market:

“It’s a further concentration of housing wealth and housing access and it means a more unequal housing market”…

“It means a more unequal society.”

ANZ senior economist Felicity Emmett agrees:

“Many of those first-home buyers are more and more accessing the Bank of Mum and Dad, which is concentrating the wealth impact and really highlighting how things like COVID can increase inequality.”

They are mostly right.

The Bank of Mum & Dad has certainly inflated FHB demand and helped inflate property values. This has made housing less affordable overall, disadvantaging those FHBs that do not have access to parental assistance by reducing their access to home ownership.

At the same time, the Bank of Mum & Dad has arguably helped to restore intergenerational equity by re-distributing housing wealth from old (parents) to young (children).

But like all demand-side measures, the Bank of Mum & Dad is not a genuine housing affordability solution. Rather it is a stop-gap measure that benefits some cohorts over others while making the overall affordability situation worse.

Unconventional Economist

Comments

  1. MathiasMEMBER

    > But like all demand-side measures, the Bank of Mum & Dad is not a genuine housing affordability solution.

    Yeah. Australias become Tribal. Every man for themselves. Everyone hates everyone else. Liberals at the top of the social hierarchy laughing there heads off. Doesnt look like we are getting any richer though.

  2. They *think* they’re helping. However parental assistance is just as bad as any first home owner grant in so far as it inflates the market overall, is capitalised into prices and a direct transfer to the vendor.
    When seen in this light the smarter thing to do is NOT provide the cash or conversely that the bank NOT take that cash into consideration for the purpose of genuine savings. But nobody will stand in front of that freight train.

    We need to level the playing field. Just as investors should not be able to use phoney equity and should instead need to demonstrate genuine cash savings, so should fhb’s.

    I have no problem with a cash gift after purchase but handing your kid $90k on an equity redraw of the family home to bid against someone else’s kid who got hold of a similar $90k leg-up is just setting them up to fail. Martin North has also stated this cohort is also more likely to find themselves in financial trouble.

    • Agree with all. Have adult kids waiting on the sidelines myself, and I’m unwilling to stoke the bonfire further. So we wait some more. This whole set-up is a toxic cocktail and a recipe for trouble.

    • Technically speaking, the bank doesn’t see that cash as ‘genuine savings’. In many cases they will require a stat dec confirming it is a non rebate gift and even then, some lenders will factor in an assumed ‘repayment’ term. For many years now now, 5% savings + costs has all thats been required as ‘genuine’ from a bank perspective.

      Given the numbers above, for Sydney bank of M&D they are basically covering the purchase costs + a bit more. That being said, in my little patch of Sydney, bank of M&D gifts/support are in the hundreds of thousands, 90K? pfft, maybe covers stamp duty and costs on a 2 bed knockdown rebuild terrance?

  3. Also adds to regional inequality as incentive to move to more affordable areas reduced. It’s a neo aristocracy. Wealthy familes stay together and build wealth over generations. The rest have to move away from familes and long established friends. What a lovely economic zone this is!

    • Cynical snake

      The incentive to move to more affordable areas or not is predominantly work, and always has been.
      Affordable areas tend to be affordable due to lack of high paying jobs.

  4. Tassie TomMEMBER

    “It’s a further concentration of housing wealth and housing access and it means a more unequal housing market”…

    Further concentration of housing access? Absolutely.
    Further concentration of housing wealth? Only if property prices continue to rise. Otherwise Mum, Dad, and First Home Buyer can all watch their wealth evaporate together.

    However, every politician intends to do whatever it takes to keep property prices rising.

    Take the childcare rebate: It is sold as “pro-women”, but what about the women who would rather raise their own children than tipping them into a communal kiddie pool each day to be raised by strangers? Now thanks to the childcare rebate extension the competitors at the auction will have two incomes instead of one and will “win” the house instead of them. They will be forced into the labour force if they want access to housing.

    Far from offering “choice”, the childcare rebate could be viewed as a mechanism of wealth transfer from the taxpayer to the incumbent property owners and the banks, using working mums as an intermediary.

    • Women who look after their own kids can get Family Tax Benefit B, provided their husband has a very high income. As you say, families living on one average income are getting screwed and falling through the cracks.

      • ‘Women who look after their own kids can get Family Tax Benefit B, provided their husband has a very high income’. Reference/Link?

          • I stand corrected. Apparently, it was uncapped under Howard/Costello, the threshold of $150k was introduced under Rudd/Gillard, and it has since been further reduced. It’s good to see one thing at least heading in the right direction.

    • working class hamMEMBER

      On the the money. The transfer from single to dual income families has had a huge impact on loan serviceability and has 100% been enabled by the completely over the top childcare subsidy. Not to mention the huge subsidy injected into the childcare sector, not to the benefit of the children via better ratio numbers, or wage increases to gain better qualified educators or even improvements for facilities. Just more kids for more days, propping up a wage slave filled industry that has already eroded the social fabric of Australia, creating a whole generation of children with severe abandonment issues and the flow on effects. Not to mention the fat profits centre operators will enjoy.

  5. Never had the Bank of Mum and Dad,
    But my Mum is a property parasite .

    Too much ain’t enough.

    She made /bullied me into my first purchase .

    As soon as did my first year fulltime employment there was a REA waiting for me when I got home from work,

    My Mum is not the sort of Woman you say no too.

  6. pfh007.comMEMBER

    Nothing surprising about that when 95% of the monetary system is built around bank credit pumped into asset prices.

    If you want to do something about that the first step is to allow the general public to operate deposit accounts at the RBA and allow the central bank balance sheet to expand to meet the general public’s demand for central bank liabilities.

    Surely ending the bank monopoly of RBA deposit accounts is not asking too much.

    What self respecting bank cannot offer unsecured bank investors more than a CB account offering zero percent interest?

    Of course the taxpayer guarantee of unsecured loans to banks would be wound back but why should the taxpayer guarantee ANY unsecured loans to private banks once risk free accounts at the CB are available to the risk averse.

  7. Why the change? I guess, before the pandemic, Mom and Dad had their money in term deposits and were earning some interest on it. Take that option away, and there is no reason for them to hang on to the money, so they pass it on to Junior.

  8. sps179MEMBER

    Music to the government’s ears. They can’t quite legislate to restrict adequate home buying to decent wealthy families who attend the proper church schools. This is the next best thing.

  9. Diogenes the CynicMEMBER

    The feedback loop on this will be massive if property prices ever fall meaningfully. The Perth market experienced a correction of about 20% over five years 2014-19 but it sank gradually as most tried and could ride it out. Any sharp fall in Syd/Melb/Bris would be a disaster for these first home buyers and their BoMaD and the reflexivity as banks sell into that falling market create systemic issues for them. I guess that’s the Sun Lords scenario.

    • Cynical snake

      Price falls aren’t that bad on their own.
      If they are caused by raising repayments due to interest rate increases on the other hand…

      As you said, if you can still meet your repayments you just ride it out.
      This is why any meaningful interest rate increase are a loooong way off.

    • MountainGuinMEMBER

      Yep, its a all in scenario for sure. Low rates, TFF, politics and media pushing, Bank royal commisssion shelved, grants,, mum and dad roped in. International trends also helping to push rates down so not just an audsie thing…. even if we do it ‘better’

    • bcnichMEMBER

      Diog

      I just wrote a long answer and just deleted

      I truly can’t believe what I’m seeing, hearing reading

      Inc this mum and dad disaster ….which will be historical

      I’ve never seen anything like what’s going on in all markets like it is now and I truly never thought I would see what’s happening now

      I haven’t written much over the last week and I won’t be around on this site much now

      This is now so far beyond comprehension, for me it’s not even worth talking about anymore

      I’m off to yoga and meditation……

      May peace be with you all

  10. Makes perfect sense from Mum & Dad’s perspective:
    1) It supports their offspring (competing against other people’s offspring)
    2) It also supports the price of their biggest asset.
    (of course, if every parent did it in equal measure, there would be no benefit to the young ones, but hey, it’s the basic instinct)

  11. The FNG.MEMBER

    This is just a decade and a half of policy failure heaped atop other policy failures. Because of the various ponzies the correct price signals are not being sent. Now masses of people have lost touch with our true economic reality.
    Money that should be saved for long retirements with shrinking tax base is being ploughed into the property bubble. Maybe its an investment in aged care from the kids…a bribe? But that’s a hell of a lot of bribes flying about.

    Why would a migrant want to come to Australia? They’ll just be locked out of housing like the ever growing group of Australians who are locked out. But they dont mind. Good thing there is an endless supply of desperados from s#!t hole countries to be our slaves.

    • TailorTrashMEMBER

      Keep the flow coming and this will be a sh1hole too
      …..and you can be sure that “we “ won’t be at the top
      and “they “ won’t be our slaves . More corruption than straya already has will see to that

  12. darkasthunderMEMBER

    A skilled migrant coming to Australia 20 years ago stood a fighting chance regarding job, income and home ownership. Tough but doable. Now they are just fodder for the system to enrich the already wealthy and give the government GDP increases (while detracting from GDP per capita).

  13. I’m curious to know what happened at the end of 2018 to cause that massive drop off in the bank of mum and dad – down from 60% to circa 20% in a few months? Anyone remember?

  14. tsport100MEMBER

    The Ponzi scheme rolls on!!

    If it wasn’t for parental assistance the market would have already started the inevitable revert to mean.. Infinite rehypothecation of unearned housing equity!

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