Australia has an
ageing society and while living longer is good news for many, there are some
major economic issues we need to understand to avert a huge problem in the
years to come.
According to a recent UN report, roughly half the children
born in developed and developing economies after the year 2000 will live to
100. Australia is no exception to a worldwide trend of increasing life
expectancy. We are ranked equal fourth in the world, with a current average
life expectancy of 82. The number one spot is shared by Japan, Switzerland and
San Marino, where the average is just another 12 months (83 years).
To put this into some perspective, the global average life
expectancy in the early 1900s was just 31 years. In early modern Britain (from
1700 to around 1900) is was somewhere between 25 and 40 years. In Classical
Rome and Greece, it was 28. Most of you reading this now would have been long
dead after 40 if you’d been borne at any time prior to the late 1800s.
But modern diets, standards of healthcare and higher quality
of life in developed economies mean that we’re all now living longer, on
average. The only problem with this is that we’re still working on a
pre-industrial model of employment, with an expectation that we’ll all retire
sometime around 60 or 65. So if we’re going to start living on average well
past our 80s, that’s going to mean a longer period without an income. For
children being born today who might live to 100, that could mean a working
career of 40 years, and a retirement period also of 40 years.
Compounding the basic maths of this problem for Australia is
the baby boomer ‘bubble’ which has tilted our demography toward the older end
of the scale. This means there are fewer and fewer people of working age,
paying taxes to run the country, and also (somehow) to support an increasingly
geriatric population.
Few of us it seems believe that superannuation is going to
come anywhere close to supporting ourselves in retirement. Repeated surveys
reported in the media point to a sceptical view of even semi prosperity in
retirement. And the high cost of housing could make this all potentially much
worse for Australia for two reasons.
First, fast forward 20 or 30 years. Fewer Australians are
going to own their own home on retirement. At present, roughly 78% of retirees
own their own home at retirement age. This report tips that could plummet to just
2% by 2050. That could be a touch on the
alarmist side but the consensus of these sorts of forecasts tends towards a
gloomy view. Rates of ownership are falling and, as policy makers continue to
fiddle with failed planning dogma, there’s little prospect of that changing. So
at the oldies end of the scale, not only are there going to be many more of us
aged over 65 (there were 2.5 million over 65s in Australia in 2002 and this
will rise to 6.2 million in 2042) but for the majority of us, we may no longer
even own the home we live in by the time we stop working. That’s a pretty
fundamental component of today’s retirement planning up in smoke.
Second, at the younger end of the scale, the prohibitively
high cost of new entry level housing is seeing more and more young people rent
rather than enter the market. I am talking particularly here of new house and
land packages on the urban fringe, the supply of which has been artificially
restricted under land use policies introduced since the mid 1990s, and the
supply of which was also discriminately taxed since around the 2000s (the GST
combined with infrastructure levies and other charges apply ONLY to new housing
supply).
There’s a growing class of investors who applaud every
increase in house prices. But their enthusiasm should not be shared by sensible
policy makers because this generation of today’s young people are not only
being denied low cost entry level housing, but they will also be expected to pay
a disproportionately high burden of tax. That’s because they’ll be among the
minority of the population with jobs, supporting the rest of us without them.
On top of this, they’re going to live a lot longer. Maybe to 100. So for some
of them, their working lives will be spent renting other people’s property,
paying higher taxes to fund a disproportionate number of old people, and then
somehow fund a 40 year retirement.
It’s not sounding pretty, is it?
To me, this makes it all the more imperative that today’s
policy makers understand the primary importance of promoting home ownership for
all Australians. As an enforced means of saving, it beats superannuation, it
promotes long term wealth generation and continues a long and successful
tradition of home ownership for all in a prosperous and egalitarian society, as
Australia has been.
That promotion of home ownership should not come through
failed grants or financial stimulus to the demand side, but removing barriers
and costs from the supply side. The rigid urban growth boundaries and
densification policies which became fashionable under a succession of Labor
State Governments since the mid 1990s are proven failures and should be
abandoned. The discriminatory system of taxing only new supply through both the
GST and per dwelling infrastructure levies is highly distortionary and has
meant that between one third and 40% of the price of new house and land package
can be attributed to taxes introduced only just over a decade ago.
Not only is it distortionary, it doesn’t even work: to the
best of my knowledge, these upfront per lot levies account for only around 3%
of local government revenues and there’s no way of linking the money raised to
the things it’s supposed to be spent on (local infrastructure). Plus, it’s all
but killed off the new home building industry, which is now producing fewer
dwellings per thousand people than any time in the last 40 years, with the
economic signals (unemployment being one) to show for it. Some achievement.
In summary, there’s almost no disputing that we’ll all be
living longer, or that there will be more aged people as a proportion of our
population than ever before. This can be cause for celebration, but it will
also mean that the importance of home ownership as a broad social and economic
objective for Australians needs to be returned to a central place in policy
thinking, not shunted to the periphery of fashionable planning ideology as it
has been.
