Key Facts

  • Academics warn that homeownership in New Zealand has become significantly influenced by familial wealth.
  • A lack of a traditional inheritance tax in New Zealand has made it difficult to track generational wealth transfer.
  • The help from parents to children often comes from non-monetary forms, such as living rent-free.
  • Now, parents and grandparents often transfer wealth during their lifetime, instead of after their death to help younger people with homeownership.
  • Parental pressure to provide financial assistance can be damaging if they are relying on that money for their future needs.
  • Data being collected by Stats NZ for the Household Economic Survey will give a more definite image of gifts and inheritances by 2025.
  • Australian study showed that those who receive cash transfer or inheritance in excess of $5000 from parents are twice as likely to own a home.

Article Summary

Academics are concerned that homeownership in New Zealand is increasingly dependent on familial wealth, indicating a widening socioeconomic divide. The lack of an inheritance tax in the country has made tracking generational wealth difficult. However, research fellows like Max Rashbrooke of the Victoria University of Wellington argue that it is rare for individuals to buy a home without some form of parental assistance. This isn’t always direct financial support but can manifest in subtler forms, such as living rent-free which equates to a form of inheritance.

The director of Massey University’s Financial Education and Research Centre, Pushpa Wood, notes that while homeownership isn’t entirely impossible without parental help, most young New Zealanders face increased pressure to seek financial aid from their parents or grandparents. While it is natural for elders to want to help the younger generation, this dynamic can strain the older generation’s financial stability, especially when it leads to an expectation to downsize homes to free up capital for their children or grandchildren.

Rashbrooke argues that it should not be necessary for parents to provide massive financial grants to their children. This pressure partially arises from high education costs and a dysfunctional housing market, forcing parents to compromise on their own financial needs. Rashbrooke notes that generational wealth isn’t as simple as “rich boomers and poor millennials,” but is nuanced, with inequalities present within each generation.

Data from the Household Economic Survey by Stats NZ should provide a clearer picture of wealth transfer by 2025. Meanwhile, an Australian study suggested that parental financial aid, both direct and indirect, like living rent-free, significantly increases the probability of children owning a house.

Source Link: To read the full article, click here.