Baby Boomers' $3.5 trillion will fund Millennials' 'forever homes'

It’s set to be a changing of generations unlike any other before, and one that could reshape the housing market. 

What’s being described as the biggest intergenerational transfer of wealth in Australian history is already underway, demographer Bernard Salt says, and as ever, it’s property prices playing a defining role. 

Born between 1946 and 1965, Australia’s Baby Boomers will begin hitting their 80s next year, and their twilight years will bring significant shifts in the Australian community. 

"During the 2030s, the Baby Boomers - 5 million people - will start to exit this world," Salt told Commonwealth Private’s Speaking of Wealth podcast. 

An unprecedented transfer of wealth will accompany the shift from Boomers to their successors. Citing research from Griffith University, a 2021 Productivity Commission report estimated $3.5 trillion in wealth would be passed from Boomers to subsequent generations over the coming two decades – a massive $175 billion dollars a year.

A historical transfer of wealth

Sheer size aside, several other important factors will make the transfer of wealth from Boomers to Gen X and Millennials very different from the inheritances passed on by their parents from the Great Depression era, Salt told podcast host Naomi Simson.  

They include:

• Family size: compared to previous generations, Boomers' wealth will be divided among fewer kids, with families shrinking in size since the middle of last century.  
• Longer life:  With average Australian life expectancies in the 80s, Boomers are living far longer than their parents, meaning wealth is being transferred much later in their children’s lives. 
• ‘Sandwich generation’: This later transfer creates significant challenges for the so-called ‘Sandwich generation’ of mainly GenXers who are the first generation to face caring for elderly parents and their own children at the same time. 
• Property wealth: Boomers' homes, often bought in the 1980s for something like $50,000, are now selling for $2 million in Sydney and Melbourne, Salt said.

Wealth transferred in ‘dribs and drabs’

Another significant change to previous generations is that Boomers will start to pass on wealth earlier, Salt said.  

"I don't think that the baby boomers will wait until they die to pass on their wealth," he told Simson. If Boomers waited, Millennials will be grandparents themselves before they inherit anything.

“There'll be further wealth transfers when they actually pass away. But they're not going to wait. They can make such a difference to the children's and grandchildren's lives by making those wealth transfers earlier, when it counts in the mid 40s, especially if we're going to live up to 90,” he said. 

“So it makes sense that this wealth transfer will not be a single hit. It will be dribs and drabs.”

Early start to fund forever homes

Salt said that while the common view was that the big intergenerational transfer will happen in the 2030s, in reality it was already under way, with Millennials’ growing need for family homes driving the trend. 

“I think it's under way at the moment, and particularly you'll see it first in Sydney simply because of the cost of housing,” he said.

Boomer wealth will change the property game for Millennials, Salt said, allowing them to move out of apartments and into family-friendly "forever homes".  

“They will pursue their forever home lifestyle in middle and outer suburbia over the next decade with support from the ‘Bank of Mum and Dad’, he said. 

“And Millennials will not go to the forever home stage of life without creating a phenomena around it,” Salt said, saying that Millennials would reshape suburban housing to suit today’s lifestyles, with features like multiple living rooms, home office and more bedrooms, all funded by “two workers and four grandparents”. 

“When you think about it, it's quite an opportunity,” he said.

Building capability before capital

At a recent AFR Super & Wealth Summit panel discussing the opportunities and challenges surrounding the great generational wealth transfer, Commonwealth Bank Executive General Manager Wealth and Private Susie Grehl said it was important that families build the capability to manage wealth before worrying about the capital they’d inherit. 

Grehl said the focus is turning from inheritance to stewardship, ensuring wealth is matched with the capability to manage and maintain it. 

“The greatest destroyer of wealth isn’t tax or markets but capability asymmetry, when assets are passed on before financial understanding or responsibility,” Grehl said.  Increasingly, families are investing in education and experience, allowing younger members to help manage a small portion of assets alongside parents to build practical confidence and purpose, she said.. 

“My number one recommendation to families navigating this wealth transfer is to "start the conversation early," Grehl said.