The legacy that the boomers will leave behind: more wealth and greater inequality

PalmThe Great Wealth Transfer predicted by economists and the international trade press is underway. Over the next two decades, it is expected that baby boomers –those born between 1945 and 1964, approximately– will pass on a significant portion of their wealth, especially real estate, to their heirs. The first consequence is that this wealth will pass to two generations that accumulate less wealth, according to data from the National Statistics Institute (INE): Generation X (1965-1980) and the millennials (1981-1996). But this transfer of wealth, in a society with lower incomes and enormous difficulties in accessing housing, will also increase social inequality between those who inherit and those who do not, many of whom are immigrants.

Several experts consulted warn that this phenomenon particularly affects the Balearic Islands, where housing prices break records every year, the average net income stands at around 15,926 euros per year –according to 2024 INE data– and half of the population was not born here. At the same time, the Prohens government has eliminated inheritance and gift tax between parents, children, godparents, grandchildren, and spouses, significantly reducing the tax for the rest to encourage these wealth transfers.

An existential difference

Paula [not her real name] is 31 years old and a pastry chef. Thanks to the inheritance left to her by her father, she also owns a 50-square-meter apartment, which she renovated. "Since I went from completing higher education to becoming independent here, I've never had to pay rent," she explains to ARA Baleares. She's aware of how lucky she's been compared to people her age—the average salary for a young person between 25 and 34 in the Balearic Islands is €22,244.97 per year, according to the INE (National Institute of Statistics and Census). "For me, the difference has been being able to be independent: otherwise, I wouldn't be able to live away from my parents now," she says. Without the inheritance, her situation would be the same as that of 57% of young people on the islands who live with their parents, and most won't be able to leave home until they're over thirty, as published by the Balearic Institute of Youth (IBJove).

Lluís, a 32-year-old journalist, has been through a similar situation. After months of searching for an apartment—he found a small studio for 800 euros, which was taken at the last minute—he came to the conclusion that paying rent to his parents, who had a property in Palma, would be the best option. At the time, they were renting it for 800 euros a month, but they agreed. "They told me they didn't want to charge me, but they also didn't want me to think that becoming independent was that easy. In the end, we agreed on a rent of 400 euros a month, plus all the household expenses." A few years later, the family agreed that he would keep the apartment. "After I took charge of the entire renovation, we reached this agreement," he explains. They are now in the process of formalizing the donation.

According to the latest data from the Balearic Islands Statistics Institute (Ibestat), in 2021, 136,877 people (11.3% of the population) lived in an inherited or given apartment, a figure that is expected to increase significantly in the coming decades. On the other hand, 303,077 people lived in a fully paid-for house in 2021 (25.02%), and 352,427 in a property purchased with a mortgage, with outstanding payments (29.09%). As for residents who rent an apartment, the percentage drops slightly to 22.84%: 276,655 people.

According to sources from the Ministry of Economy, "it makes sense" that the Great Wealth Transfer phenomenon would have an impact on the Balearic Islands. "The millennial generation has gone through two major economic crises, the financial crisis of 2008 and that of Covid-19, which have had a very significant impact on average incomes," they point out. "Young people have enormous difficulties buying a home despite the measures that may have been undertaken, and inheritance ends up being a way out," the knowledgeable sources continue. The Government is aware that currently "the main factor of inequality is whether or not you own a home," they insist. In this sense, they believe that the elimination of inheritance tax makes it easier for more people to access it.

On the other hand, some of the economists and sociologists consulted by ARABalears warn that, although it may be a lifeline for some young people, this option will contribute to widening intragenerational inequality between those who inherit and those who do not. "The Great Transfer will be, above all, because the price of apartments has risen a lot, and also because the generation of baby boomers "It is very numerous," explains Josep Oliver, emeritus professor of Applied Economics at the Autonomous University of Barcelona (UAB). "Both the boomers as part of the next generation bought a home at the end of the housing bubble," he specifies. "In Spain, 75% of families live in their own homes: given the country's demographic structure, which tends towards aging, the question is to know to what extent this transfer will distort the perception of the... In this sense, the expert believes that there will be a "division between natives and immigrants, who are excluded from the purchase as a large group." Regarding the inheritance itself, there are many indirect ways to help children become homeowners, whether by guaranteeing their mortgage or finding ways for them to save," he argues. This is the case of Joana, a 30-year-old self-employed woman who inherited an old house, but doesn't have the money to renovate it, and has finally opted to live... a 34-year-old doctor, who when she returned from studying in Barcelona also lived for a few years in her mother's apartment, while she saved up. Finally, her father gave her an apartment that was rented under an old-style rental agreement, like this one in Palma," he explains.

"In the Islands there has been a generation that did a lot of work, was able to save and, consequently, has generated a wealth that is mostly real estate, but not exclusively," says Pep Ignasi Aguiló, professor of Economics at the UIB and former Economic Vice President and Minister of Economy with the PP (2011-2013). "The generation of baby boom will use up a good part of this wealth, because they have retired early," he believes. He warns that the Great Transfer phenomenon "is passing, but it cannot be generalized, because when there is an accumulation of wealth, a part of the population may choose to do less work." "Currently, there is a transfer of wealth from young to old through the system; we'll see how it ends up happening," he maintains. He believes that housing prices could fall in the coming decades, as well as population growth. In any case, he agrees with the elimination of inheritance tax: "These homes must be put on the market; it benefits us all." ~BK_SLT_s

Ivan Murray, PhD in Geography and expert in environmental sustainability and real estate speculation dynamics, explains that "this phenomenon has been noted for some time, and it is now becoming more widespread." "Inequality in Spain, especially in the most tourist-intensive areas and large metropolitan areas, is driven by the housing issue," he argues. "The inequality gap widens when the property-owning classes pass their assets from generation to generation, and the rest, especially migrants, are increasingly displaced from accessing housing," he laments. "This exemplifies the great failure of housing policy," Murray adds: "Our precarious social system is sustained not by political means or by social policies, but because family structures with a certain fabric still exist that hold up, but this is increasingly straining the system." He also criticizes the government's "lax or non-existent" taxation policies regarding property transfers. "They advertise that it benefits people living in precarious conditions, when the main beneficiaries of these deductions are those at the top of the social pyramid," he complains.

Ester Oliveras, a doctor in Accounting and professor of Financial Economics and Accounting at Pompeu Fabra University (UPF), doesn't believe that these inheritances could represent "a major change on a global scale." However, she does point out that "the social elevator is broken": "Before, a person could buy an apartment if they worked, but now the price of apartments is exorbitant compared to salaries, and it's very difficult."

Along the same lines, Alexandre Miquel, professor of Anthropology at the UIB, agrees that "inequality is not only your salary, but your ability to access what has ceased to be a commodity and has become a financial asset: a home." "The Western world is heading toward increasing inequality: if you were born into poverty, you will be poor, and if you have any assets to pass on, they will depend on the number of people you have to share them with," he concludes.