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Sunday Star Times

Lifetime of renting a recipe for poverty

By RUTH LAUGESEN - Sunday Star Times | Sunday, 09 March 2008

Property-rich baby boomers are locking young New Zealanders out of the housing market, setting the scene for a widening generational wealth gap.

New research from the Centre for Housing Research has found younger New Zealanders are buying homes later, with the result fewer will be able to buy homes at all.

"The result is that wealth levels probably won't be as high for this generation of under-35s as they were for the baby boomers and older," said Victoria University Human Geography Professor Philip Morrison, author of On the Falling Rate of Home Ownership in New Zealand.

The report found someone born in 1956 had a 75% chance of owning their own home at the time they turned 35. In contrast a 35-year-old in 2006 had only a 58% chance of owning their own home.

"The later you get into the housing market, the less time you have to build up equity. This generation of late starters is not going to be able to generate as much equity as their parents.

"They are coming in with greater debt and much higher property prices relative to wages," said Morrison.

He said because of the late start, it was unlikely that younger New Zealanders would catch up to the property ownership levels of previous generations.

Even if they did, it was likely they would carry heavier debts.

Property has been the cornerstone for ordinary New Zealanders' wealth, with some estimates that up to 80% of an average household's assets are tied up in residential property.

On the flip side of the generational wealth divide, those who already owned property were multiplying their wealth. Many baby boomers were using their property equity to buy extra properties, and becoming landlords to their children's generation.

Retirement Commissioner Diana Crossan said more parents and grandparents might have to help their children or grandchildren buy property.

"People my age, early baby boomers, paid somewhere around three times their income to buy a home. Whereas now it costs something like seven times their average wage," she said.