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Housing affordability and income are the major variables as to whether or not we own our own home. However, a 2016 report by American real estate site Trulia, suggests another potential piece of the puzzle – family history.
Trulia analysed data from the University of Michigan’s panel study of Income Dynamics – the US equivalent of the Household, Income and Labour Dynamics study in Australia. They found adults with parents who owned a home were almost three times more likely to buy a house as people whose parents rented. Comparing Americans of the same age on identical earnings, the study controlled for the obvious effects of income and age.
One possible explanation could be that home owners are better placed to provide financial help to their adult children. Of the adults who grew up mostly in owned homes, 11.4 percent received assistance with a deposit on their own home. Only 2.6 per cent of those growing up mostly in rental accommodation received the same financial leg-up.
However, even when excluding those benefiting from the family coffers, there was still a substantial difference between people whose parents rented and owned.
Twelve per cent of the 25-year-olds with an annual household income of $40,000 and parents who rented throughout their childhood, owned a home. Those 25-year-olds on the same income, but with parents who were home owners throughout their childhood, had a much bigger 29 per cent chance of the same.
How did older age groups on higher incomes fare?
Seventy-nine per cent of 40-year-olds in $100,000 annual income households, owned if their parents did; 56 per cent with parents who rented, owned. At higher incomes the gap narrowed progressively to negligible differences at household incomes of $250,000.
Andrew Gorman-Murray, an associate professor in urban geography, at Western Sydney University, speculates that children growing up with parents who are property owners inherit greater intergenerational financial literacy. “Parents who are financially literate and able to budget, are therefore able to teach their children how to save, delay gratification and plan strategically about what you do with your money,” he said.
Alternatively, growing up with parents who value access to amenities and career opportunities over owning property, might rub off. “If parents are renting and doing so successfully and having a successful life and career, then I can see that as a positive influence on their children’s choice,” he says.
“From my experience there’s a class base to it as well. It would be more acceptable coming from an upper middle-class background to have investment property. Whereas, if you’re from more of a working-class background the drive is to own your own house. Even if they don’t teach you directly, just by growing up in that environment they will impart the normality of that onto you. “
Illustrating the power of parental influence, 28-year-old Michael Tiemens, managing director at Peak Property Group, says: “The reason why I began investing in property [at age 20] is completely owed to the fact that my Mum had me attend some workshops with her. Unfortunately, due to a tragic event that occurred in our family [Tiemens’ father died when he was 17], we were encouraged to do something more than the norm.” Tiemens also benefited from entrepreneurial parents who owned a hobby farm. “I wouldn’t say that our family was well off. My parents had to work very hard for every dollar.”
Alternately, the childhood experiences of 35-year-old Melbourne-based financial planner Margaret Liu led her to equate buying a home with stress. “My parents rented during my childhood. They bought a year-and-a-half later and that seemed to put stress in their relationship. Mum took two jobs and worked like crazy to pay off the mortgage. This influenced me strongly about never ever doing anything that would take me away from spending time with my child. To me, the thought of a ‘forever house’ is a little hard to imagine – I place more value on the people I’m with, and experiences shared, rather than a particular material possession to make me feel at home. My husband and I found renting more economic while offering us the advantage of moving.”
Queenslander Andrew Courtney, 32, took a different path to his parents. Courtney and his wife own three investment properties and run social enterprise, Plenitude Wealth. “This has stemmed from coming from families … who weren’t financially savvy,” he says. “My parents rented as far back as I can remember. They’ve always wanted to own but never really had a solid enough financial base to do so. They taught me what not to do.”
Ultimately, Gorman-Murray considers the unaffordable nature of the Australian housing market to be a more significant driver than parental influence. “Housing is more affordable in the US than Australia. Across Australia, it’s severely unaffordable. [That] closes down choice for a lot of people.”