RBA warns of a growing trend of wealth flow from younger to older generations due to rising property prices

The Reserve Bank of Australia has warned of a huge transfer of wealth taking place from the younger to the older generations as a result of the sky high property prices in the country. With income levels falling due to job cuts in several sectors, the young Australians are finding it increasingly difficult to purchase or rent a property.

According to RBA Deputy Governor Philip Lowe, the rising property and land prices in the recent times have resulted in “windfall gains” by only a handful few. That includes the older homeowners without children as well as the owners of investment properties. But such a condition is not favourable for renters and has left young parents worrying about the chances of their children buying homes for themselves in the future.

Lowe said on Wednesday that it was arguable that the main impact of the increasing property and land prices is distribution of wealth among the older and the younger generations rather than improving the figure of national wealth. He also said many Australians are being troubled by concerns over the future housing costs for their children, despite deriving capital gains from their own properties.

"Many parents around the country look at the high housing prices and worry that their children will not be able to afford the type of property that they themselves have been able to live in, even if their children were to have the same life-time income profile as they have had," Lowe said in Perth. "How the intergenerational distribution ultimately plays out will depend critically upon the extent to which the gains that have accrued to the current generation are passed on to the next generation."

He also said that strong evidences point at a trend of younger generations seeking financial assistance from the older generations for renting or buying properties. Lowe warns that if this trend is to continue, people would not be able to use the profits from their properties for their own consumption as they will need the money to help out their children.

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