Demographic Disruption

The property market is always susceptible to disruptive forces of one kind or another.

The last two decades has seen constant digital disruption as websites and databases decimated print. The digital disruption changed the way real estate is purchased and sold forever more.

In 2014, there was an influx of foreign buyers into the Sydney and Melbourne markets. The presence of so much foreign money swooshing around those cities disrupted the market to the point many locals were priced out of their respective hometown. The Federal Government was forced to introduce restrictions and taxes to curb the demand.

As baby boomers reach retirement, their changing property needs will disrupt the market. Disruption should not be construed as negative. Disruption simply means to significantly alter the status quo.

Baby boomers are a demographic born between 1946 and 1964, as defined by the ABS. History has shown that whatever the baby boomer demographic does in unison it causes a boom. Given society experienced a baby boom in the past, it is understandable that one day it would experience a retirement boom and all of the adjustments that come with it.

Baby boomers are the largest represented demographic in modern society. Given their needs in the property market are changing, it’s worth taking note.

Before exploring what boomers are likely to do, it’s worth exploring what they won’t do. There was a theory that boomers would sell up and head out of town for the coast once retirement arrived. While many have done so, more are choosing to stay connected to cities and towns where family, friends and medical infrastructure are.

It’s not that the sea change (tree change for others) is entirely off the agenda, but the amount of boomers retiring in the city was somewhat unexpected.

To assist in understanding how the baby boomer demographic will impact on the market in the next 5 to 10 years, it is worth categorising their likely moves.

Selling the family home – There will be a mass and rapid transfer of large family homes to the next generation in the near future. The property market in Sydney and Melbourne is clearly overvalued (not to be confused with a forthcoming crash). Therefore, the time is right for boomers to begin downsizing from both a wealth and lifestyle perspective. Given the boomers numerical dominance as a demographic, if the selling is too fast, you may see oversupply in large family residences. A great question to ponder – is there enough demand from Gen X and Gen Y’s to support house prices at current levels once Baby Boomers sell down?

The answer will vary depending on whom you ask, but it is a segment of the market worth watching.

Selling the investment property/properties – as a result of the GFC, stock markets and superannuation has been poor for boomers in comparison to property. Since the 2008 GFC, the Sydney property market was in boom mode for 2009 & 2010, followed by a second boom from late 2012 to the present. Those fortunate enough to own investment properties will look to cash in while the going is good. Property has become the best superannuation for many boomers as they head into retirement.

Buying a property for the kids – many parents are delighted at property prices on the one hand and horrified on the other, when it comes to their children entering the market. Increasingly, boomers are assisting their children into the market. This phenomenon is certainly a secondary phase to the boomers wealth transitioning. But the key point here is that boomers are using their wealth to assist their children into property, not the stock market or new business ventures.

All general comments sure, but anecdotally, no one would suggest that boomers are passing on their wealth to children to enter into business ventures or money markets enmass. Boomers are clearly more interested in real estate than other asset classes when it comes to assisting family.

Therefore, even though boomers will be selling down their assets, expect the cash to be largely recycled in the housing market.

Buying a luxury apartment – If baby boomers are selling the family home, it is worth factoring in where they are going. Secure apartments close to the Harbour or beach have been popular. Luxury apartments for example in Drummoyne East along St Georges Crs that have great water views have skyrocketed in price in the past 3 years. In this segment of the market, it is safe to expect the demand will exist for the next decade.

Buying a single level house/property – the most desired yet undersupplied product in the inner ring of the Sydney marketplace is single level homes. This is true for many other markets too. Baby boomers primarily sell the family home to unlock wealth and downsize because the family home is too large. Escaping stairs is a secondary reason for selling yet a huge consideration on the purchase. Single level homes in popular locations will benefit from baby boomer demand, much to the chagrin of the aspirational young family. Make no mistake; baby boomers are formidable opponents in a bidding war.

As you can see, the boomers may leave an oversupply in large expensive family homes and create a shortage of luxury apartments near water. Hence the disruption that has already begun in the market. We are already seeing all of the above and more occur in the marketplace. This disruption is in its infancy and will accelerate into the near future.

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