THE sluggish housing market has sparked predictions that the latest generation of home owners will be unable to rely on their home as a key source of higher wealth, as many baby boomers did.
Instead, analysts say people who joined the housing market in the last few years are unlikely to experience the ''magic money machine'' effect of bumper rises in the equity in their homes.
In the late 1990s and early 2000s, house prices more than doubled, a trend that benefited even highly indebted owners. Rising equity - the proportion of the house's value belonging to the owner, rather than the bank - was credited with boosting consumer confidence and spending.
However, analysts say the trend is unlikely to return, with Sydney house prices down 2.6 per cent in the past year and the Organisation for Economic Co-operation and Development this week warning of further risks nationally. The head of research at RP Data, Tim Lawless, said home owners who bought in the last four years would find it much harder to build up equity. December figures from RP Data show 6.4 per cent of home owners had seen the value of their home fall to less than they paid for it. This proportion is likely to increase after recent price falls.
''Realistically, anybody looking to build up wealth and equity in their property needs to have a long-term view. They're not going to be accumulating equity in their property in the current conditions, or over the next couple of years, very quickly,'' Mr Lawless said.
A consultant, Martin North, said his surveys of consumers had found those who bought in the last four years - about a third of home owners - had received little or no capital growth.
''Property was a magic money machine for the last 20 years,'' Mr North said.
''You basically went on at the start with a high mortgage, paid it down, maybe traded up a couple of times, and you ended up with a very significant pool of equity.
''I don't think we're going to see that over the next five to 10 years … which means there is a generation now who won't get the sort of returns from their properties that they were expecting to get.''
Home owners aged between 25 and 34 have the highest proportion of debt to assets, at 63 per cent, statistics from the Reserve Bank show.
However, households are also paying down their mortgages at the fastest pace in years, and most borrowers are making more than the minimum monthly repayment.
This conservatism comes amid predictions house prices are likely to remain subdued. The OECD this week said the high dollar was ''generating substantial uncertainties that could weigh on employment, confidence and growth, with potential negative spillovers on house prices''.
Christopher Joye, an executive director of Yellow Brick Road Funds Management, predicted that over the next 10 years, house price growth would be about half what it had been in recent decades.
''For the last 20 years or so house prices grew by nearly 8 per cent a year, however over the last four years they've only grown by 2 per cent per annum,'' Mr Joye said.
''Over the next 10 years we only expect house prices to track household incomes and we project that disposable household income should grow by about 4 to 5 per cent per annum.''
