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Monday, July 07, 2003

The 'Lucky' Generation

A snippet from my brother in the mailbox, and then a related piece from Polly Toynbee.

You may have read about the corporate retirement plans crisis with some pension funds being £200 billion in the red. Secondly the UK housing stock is worth £2560 billion only 23% of which is mortgaged. It is estimated that UK housing wealth will peak at £7 trillion in 2020 and that the value of the present UK residential hosing market has jumped by 78% since 1998. The Centre for Economic & Business Research also says that after another record year of mortgage equity withdrawal household residential property will have increased in value by £256 billion against an increase in borrowing secured against housing of around £86 billion. This year mortgage equity withdrawal will be worth 7.7% of consumer spending and even in 2005 we expect it to be worth 5.9%.

Now it doesn’t take much to work out that the government are going to try to cut some deal so that unmortgaged housing equity can be used to supplement retirement income. I am staggered that the amount mortgaged is so low as a % and I would be interested to know what the US and Pan-European situation is since this may affect your deflation/demography calculations. It will of course all end in tears!

A couple of points before we move on to Polly. Firtly my defaltion/dmography thesis is not based on calculations, it is based on observing phenomena (Japan, Hong Kong, Singapore, now Germany etc) looking for similarities and differences and trying to understand what is happening. ie this is not about futurism, and about how marvellous/unpleasant things will be 20 years from now (I don't engage in that kind of speculation. I have no idea, but since this is the first time for all of us I don't imagine anyone else really has either), but about what is, or is not, happening now. Secondly, it is important to realise that these are book values, as assessed at the height of a boom. What could be the real to market value of much of this property in none boom conditions and with a lot of property coming on line at the same time is an entirely different topic. It is interesting to note that the Japanese property boom was driven by trading involving approximately 10% of the stock, and that book values are now 40% down over the peak. Meanwhile the mortgages are real, and remain real even as the value of the underlying assett deflates.

Now for Polly Toynbee. I may prefer to say things in a different way (and obviously she is much more inclined to the new law than I am), but I very much agree with the sentiment: we have been the 'luckiest' generation in history. What a tragedy it would be if now, having had so much, we should become so selfish and inward looking as to forget that the generation to come may not be so lucky, and simply try to 'flexibilise' them in order to pay our pensions, or so un-generous as to be unable to salute and greet those newly arriving third world countries about to have their 'lucky generations'.

Here we go! The golden generation gets its greedy way again. I long ago predicted that when we, the great postwar boomers (vulgarly known as bulge babies for demographic not fattist reasons), reached retirement, we would refuse to give up what we've got. We would have anti-age discrimination laws so that no one could ever force us out of our jobs. So here we go! Or rather, here we stay forever.

Talking about my generation, of course we didn't die before we got old. We lived on and we had it all. There never was a more fortunate time to be born in the west than just after the second world war. Consider how doors opened for us: the national health was created in 1948 for us to be born into, the Butler education act made sure we had universal education. Comprehensives followed: I went to the sixth form of one of the first, full of hope and modernity.

The Robbins report opened up a swathe of gleaming new plate-glass universities for us, making Keele, York or Essex newly cool, while the Open University caught late-starters. With our new buying power, 1960s youth stamped our tastes on everything: when we were young, the whole world had to be young with us.

Growing up, we lived through the greatest upward mobility ever known within a generation. Born some 70% into manual working families, by the time we married and had children society had reshaped itself radically: now two-thirds of us are middle class, with home-owning as good a class indicator as any. The nation's wealth and average incomes have more than doubled since we left university.

Our pensions may have staggered badly in the crash, but after years of hefty tax breaks that form the unseen middle-class welfare state, most people will still retire better off than our parents ever dreamed. We are also the first generation where many will inherit significant sums from home-owning parents - a windfall in late middle age that is hardly taxed for most - money to secure our children's wealth or to blow on old-age boozing and cruising................

Size matters in generations. We, the outsize generation, always had the buying and the voting power to impose our will and tastes on all who come after: Brian Matthew's Sounds of the Sixties (SOTS to aficionados) will still be playing Radio 2's prime time Saturday morning slot when we are 90 (and Brian Matthew is about 110). When we need care, we will divert more public money to the best home care or care homes.

The weaker generations that come after us have not had it so good. They have had a more competitive exam-driven education: the more people who take exams, the greater the penalty for failure. In our time, when only one in seven went to university, many more could still make their own way upwards without qualifications: now exams are the only ladder up. The young work harder than we did, the colossal weight of ever higher mortgages falling harder on them.
Source: The Guardian

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