Free Reports

How a Real Estate Crash Can Help the Youth

Oct 6, 2016


A report from the Institute for Fiscal Studies (IFS) today announced that those born in the early 1980s have half as much wealth today as those born in the 1970s had at the same age.

This has caused a new round of "intergenerational inequality" hysteria in the newspapers, but if you stop to read the report properly you will see that it is all about one thing and one thing alone: house prices.

Incomes for those born in the 1980s are much higher than those born in most other decades and much the same as the incomes of those born in the 1970s at the same age. It would be nice if they were higher (it is good to see productivity gains constantly on the go). But they aren't lower - so that's fine. Pension arrangements and financial wealth is also much the same between the two cohorts.

The one thing that is significantly different is home ownership. A mere 30% of those born in the 1980s have bought their first house by the age of 30. The equivalent number for those born in the 1970s is 55%.

  [VIDEO]: 58 Minutes with Vivek Kaul...  
  The "India Crisis" that I have been warning you about in my previous emails just got worse.

In fact, to help me explain to you the potential danger this crisis puts you and your family in...

We invited lauded journalist Vivek Kaul to speak with me at our Equitymaster offices in Nariman Point.

Click HERE to see that video and learn:

  • What India's demographic dividend really looks like
  • What industries India really needs to focus on to get on top
  • What the government is really concerned with
  • Why you should begin to protect your financial assets and family immediately
*Plus valuable information on the current real estate market

Click HERE to watch the full 58-minute video.

House prices have been rising, so it therefore makes complete sense that the 1970s cohort had more wealth in their 30s than those born in the 1980s. If house prices now fall dramatically, the wealth gap between the two will reverse. So what's to be done about this?

The first thing to note is that, while the inability of younger generations is largely about price, there are other parts to the equation. On a radio show I went on earlier today [from about 1:14 in], the 30-something brought on with me said that he couldn't save for a house because he was saving for his wedding.

People spend an awful lot on weddings these days. That's a choice. Those in their 30s also eat out twice as much as those in their 50s. Again that's a choice. They are also much more likely to have student loans left to pay down (that's not a choice but it does make saving harder).

Inheritance matters too: the longer people live, the older their heirs are when the wealth trickles down. And there's also the effect of the sharp rises in the actual cost of moving to take into account (stamp, legal fees etc). These tend to mean that people buy fewer houses over a lifetime than in the past. And if you are buying fewer houses you might skip the first step of the ladder - why buy a two-bedroom flat only to have to pay £10,000 in expenses five years later when you need a garden?

All that said clearly very high house prices make it hard for the young to get on the ladder in the first place. So if you want to help those born in the 1980s to catch up with those born in the 1970s, the obvious thing to wish for is house prices to fall (making the 1970s lot poorer on paper and the 1980s lot able to buy).

How? Higher interest rates would be a good place to start.

Please note: This article was first published in MoneyWeek on September 30, 2016.

Merryn Somerset Webb is the editor-in-chief of Moneyweek, the best-selling financial magazine in the UK, and is a director of two investment trusts - the Baillie Gifford Shin Nippon Trust and the Montanaro European Smaller Companies Trust. Before joining Moneyweek, she worked at the Japanese public broadcaster NHK, SBC, UBS, BNP Paribas, and The Week. Merryn has a weekly column in the FT and a monthly column in Saga. She is a regular TV/radio commentator and speaker on financial matters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "How a Real Estate Crash Can Help the Youth". Click here!

3 Responses to "How a Real Estate Crash Can Help the Youth"


Oct 6, 2016

Everything in the market is dependent on demand and supply. Bank credit growth is very weak. Therefore, interest rates should be reduced. It is only the central bank that distorts the market.



Oct 6, 2016

""How? Higher interest rates would be a good place to start""--Excellent.

Will be great If Equitymaster can facilitate the use f emoji's while seeking feedback etc



Oct 6, 2016

I want to add that we have huge NPAs in banks. Lot of industry cannot invest. Therefore, very few jobs are getting created. Therefore, we should bail out banks just like western world. This will help young people more than real estate crash.

Equitymaster requests your view! Post a comment on "How a Real Estate Crash Can Help the Youth". Click here!