Could early inheritances help solve the housing crisis?

Not one day goes by in Australia without at least one news item about the housing crisis.

Despite all the government housing policies and construction everywhere you look, the Australian rite of passage of buying your own home seems ever further out of grasp.

Part of the problem is supply, but also, housing is becoming increasingly expensive. According to the Australian Institute, in 1990 and through the decade that followed, the average dwelling across Australia was worth around 9.5 times that of annual household income per capita.

In December last year, the average dwelling in Australia cost 16.4 times that of household income per capita. That increase in the ratio is the equivalent of an extra $167,000 in the price of a dwelling – or roughly an extra$ 33,000 on a 20 per cent deposit.

Property now

However, a new report by Australian Seniors claims that in recognition of this crisis, many older Australians are opting to hand down property now, rather than making their families wait for an inheritance.

The report surveyed more than 1200 Australians aged 50 and above, to explore attitudes towards legacy planning and how many older Australians intend to help the next generation achieve homeownership.  

According to the report, a quarter (25 per cent) of Australians over 50 have already transferred property to their children, while a staggering 68 per cent plan to leave property as inheritance. This highlights the increasing reliance on the ‘Bank of Mum and Dad’ as a lifeline in a challenging market. 

However, many are also feeling the pinch between their funding a secure retirement and future healthcare needs and a desire to help their children onto the property ladder.

According to the report, nearly seven in 10 (69 per cent) parents over 50 admit to feeling pressured to provide for their children’s future, with a staggering 74 per cent citing the rising cost of living as a major obstacle to leaving a meaningful inheritance. Adding to this pressure, close to three in 10 (29 per cent) seniors feel guilty about leaving an insufficient inheritance for their loved ones. This sentiment has risen significantly from 17 per cent in 2018. 

Crucial for stability

For many nearly nine in 10 (89 per cent) parents believing an inheritance is crucial to ensure their children or grandchildren’s financial stability. In fact, nearly two in five (36 per cent) working over 50s are postponing their retirement to build a larger inheritance pool.

The report found that property is the most commonly passed-down asset after death (62 per cent), highlighting its significance as an entry point into the housing market. A quarter (25 per cent) of older Australians have transferred property ownership to their children before their passing, reflecting a growing trend towards providing financial support earlier in life.

Chief executive and founder of online will service Safewill Adam Lubofskyand commented: “The concept of a ‘lifetime gifting’ – gifting money or assets to loved ones while a person is still alive instead of in their Will – has become increasingly popular in Australia. With cost of living pressures increasing, Australians living longer, and older Australians holding more assets than their children, a lot of people are starting to look to lifetime gifts to ease the burden on their loved ones while they are still alive.  

“Not only is this a way to provide immediate relief from cost of living pressures, but it also allows families to enjoy the giving and receiving together, rather than at the time of passing”.

Heavy burden

Is this trend putting a heavy burden of expectations on Australians in the face of rising cost of living, and health and aged care costs?

The figures are a bit out of date, but according to the Productivity Commission over $120 billion was passed on to family members in 2018, more than double that in 2002

Inheritances in particular, which accounted for around 90 per cent of all transfers, have increased steadily in line with the growing wealth of older Australians. In 2018-19 the value of the average inheritance was $125,000 compared to $8000 for gifts.

However, the Australian Seniors survey found that more than three in five (61 per cent) fear they will outlive their retirement savings, while more than half (53 per cent) are worried about maintaining their desired lifestyle in retirement due to financial constraints.  Which would seem incompatible with handing over money to children.

Would you consider an early inheritance? Why not share your thoughts in the comments section below?

Also read: Can you transfer a property to someone without selling it?