Get set for Baby Boomer property sell-off

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Hundreds of thousands of homes will change hands over the next two decades as Baby Boomers’ properties are passed on to younger generations.

The proportion of older homeowners has been gradually increasing over time, from 15.8per cent of homeowners in 2001 to 16.8 per cent in 2013.

At the 2013 census, there were 536,475 people aged between 50 and 64 who said they owned or partly owned their homes.

At a rate of two people per household, that would mean 268,200 houses that might be sold or left to estates over the next 20 or 30 years.

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 “The proportion of the total population who might sell or leave property to their children has been edging up, which is unsurprising given what we know about the age profile of the population,” said economist Gareth Kiernan, chief forecaster at Infometrics.

Researchers at the London School of Economics (LSE) concluded in 2013 that inherited wealth has been on the rise in Britain and France since the mid-1970’s, accounting for about 8 per cent and 11 per cent of people’s income.

But Kiernan said young people should not hold out hope of an inheritance as the solution to high house prices. 

“The trouble with increased life expectancies is that, in general, by the time you inherit anything from your parents, you’re past the point of really needing that financial assistance.

“The only way I could see this inequity being resolved in a relatively timely manner would be for elderly people to start leaving more of their estate to their grandchildren rather than their children,” he said.

At the 2013 census, there were 536,475 people aged between 50 and 64 who said they owned or partly owned their homes.

CHRIS GORMAN/STUFF

At the 2013 census, there were 536,475 people aged between 50 and 64 who said they owned or partly owned their homes.

“Anecdotally, we’ve seen an increased proportion of middle-aged/older working people helping their kids into the housing market via loans/gifts/equity sharing, and there is a section of older people that are conscious of the difficulties for young people to get into the housing market.

“However, at this stage, I doubt there is enough of a trend there to believe people’s behaviour will resolve the intergenerational inequity any time soon – either through financial assistance while alive or through inheritance at death.”

Kiernan said Boomers exiting the housing market would not present a risk to house prices.

“The migration boom of recent years has meant that population growth has been unexpectedly more concentrated in the 20 to 40 age bracket. This additional demand for housing has made conditions that much more favourable for Baby Boomers looking to downsize or cash up. Migration is obviously easing now, but the under-supply of housing, at least in Auckland, doesn’t look like it will significantly shrink any time soon.”

TAX IT?

Some countries apply a death or inheritance tax on assets. It’s been argued it’s a fairer way to tax wealth, because it captures the end result, not the twists and turns of a person’s financial life along the way. There’s also arguably less of a disincentive to wealth creation.

In Britain, you pay 40 per cent of any estate worth more than £325,000 ($629,486) if it is not left to a spouse, charity or amateur sport club,

If a home is given to children or grandchildren, the threshold increases.

Last year, The Financial Times reported that inheritance tax receipts in Britain exceeded £5bn for the first time and were at their highest level since the 1980s, as a proportion of national income.

Shamubeel Eaqub: A financial transaction tax would be better than a death tax.

CHRIS MCKEEN/STUFF

Shamubeel Eaqub: A financial transaction tax would be better than a death tax.

Kiernan said there was little political will to introduce this in New Zealand. The Tax Working Group allowed relief for inherited assets in its design of a capital gains tax and was told not to consider an inheritance tax.

His colleague, Brad Olsen, agreed.

“A death tax is viewed by many to be a second tax on earnings and savings, as someone who’s saved all their lives and worked hard for their finances, which were taxed at the time they were earned, would face their saved assets from being taxed again.

“New Zealand’s capital gains tax debate has highlighted that Kiwis want to keep personal and household finances separate from investment finances, hence the Government barring the Tax Working Group from including the family home from a capital gains tax. If we as a country are not willing to tax our house for capital gains, there’s unlikely ever to be political will have a more comprehensive death tax.”

Economist Shamubeel Eaqub said a better option would be a financial transaction ax.This would apply a small charge on every financial transaction executed,.

The Tax Working Group said it did not recommend such a tax at this point.

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