ARE TODAY’S YOUNG ADULTS WORSE OFF THAN THEIR PARENTS? IS HOME OWNERSHIP STILL A REALITY?
First there was the baby boomers. Then there was Generation X. Now, there is “Generation rent” – the first generation to get locked out of the housing market and worse off than their parents. According to figures compiled by the Australian Population Research institute [tapri.org.au], in 2011, renters made up 42 per cent of Sydney’s partnered population within the 30 to 34 age bracket, and 36 per cent in Melbourne.
Authors of the report, Bob Birrell and David McCloskey, claim that Sydney and Melbourne are now “right at the top of the most unaffordable locations in the world,” with figures showing “the median price for a house in Sydney was 12.2 times the median household income” in the third quarter of 2015. Out of the 86 locations studied across the globe, Sydney came in as the second least affordable.
So, where does this leave the next generation of young Australians? A recent survey conducted by MLC shows that 58 per cent of participants believe home-ownership will be unattainable for the next generation – that’s three in five people.
But is this really the case? Will renting be the only option for the children of this generation? Or, will generation rent become generation “game-changer,” and turn the Australian dream of home-ownership on its head forever?
HAVE YOU TRIED THE SBS HOUSING AFFORDABILITY INTERACTIVE?
Created by Ken Macleod, the interactive housing affordability interactive enables users to compare real estate affordability nation-wide. By typing in the postcode of the suburb you wish to buy in, and selecting your age and status as a single person or member of a couple, you can compare the affordability of both units and detached housing in that area. The results show the difference between the average income of your age bracket and the income required for loan servicing as a percentage, which gives you either a yes or a no for affordability. The interactive also provides a map of the suburb and surrounding areas that has been colour-coded according to the affordability of the area. It shows the NSW border town of Albury by default, and – good news for 25 to 34 year-olds living there – they can easily afford the median unit price of $180,000.
But what about a young couple who wish to buy an apartment in Sydney’s western suburbs? The median unit price in Parramatta is $510,000. For those 35 to 44 year olds who earn a combined income of $136,940 (the average according to the ABS) this is an affordable option, but for 25 to 34 year olds, who, on average, earn $108,114, Parramatta is about $8,500 a year out of reach. And what if the older couple mentioned above had two or three children and therefore were looking to buy a house instead. I’m afraid they would need to earn an extra $57,346 each year between them (that’s almost 42 per cent more) in order to afford a free standing dwelling. Sorry kids, it’s back to the bunk beds for you until you can pay your own way in this apartment!
Scenarios such as these are becoming more and more real for Sydney-siders who earn an average wage. Families are being pushed out of Sydney itself and are choosing to purchase homes in the Central coast and Blue Mountains in order to avoid raising their children in a two-bedroom flat. This often means three or four hours of daily commute between house and work, which can be expensive and exhausting.
Recent figures compiled by the Housing Industry Association of Australia echo a similar sentiment. They say it takes 2.04 average full-time salaries to comfortably service a standard mortgage on a median priced, detached house in Sydney. This means that a couple who earn $180,000 between them would struggle to pay off the mortgage on their house.
AND WHAT ABOUT WAGE GROWTH?
According to the Australian Burea of Statistics, the average Australian wage increased by 1.7 per cent from November 2014 to November 2015. The latest figures released by CoreLogic RP Data, on the other hand, show a trend of 7.43 per cent year on year growth in Sydney’s property prices – that’s more than 5 per cent difference between wage growth and growth in property value.
ENTER: GENERATION GAME CHANGER.
These statistics are a heavy load to carry. For many, the idea that the “Australian dream” of home ownership is out of reach – perhaps for ever – is such a depressing concept that they give up all hope and don’t even bother trying. The Housing Affordability report mentioned at the beginning of this post quotes Luci Ellis, of the Reserve Bank, who says, “outright home ownership is widely regarded as key to avoiding poverty in old age.” This idea is embedded in Australian culture. Our house is our greatest asset, yet, as Daniel Young, co-founder of BInvested, reminds us, it doesn’t earn any income because we are living in it. If shit hits the fan – then what? Sure, it is better than owning no assets at all, but if you need to sell the family home to make ends meet, then what will you be left with?
It is time to let go of the victim mentality and become a game changer. Instead of lamenting over the fact you can’t buy a family home in Sydney, consider your options and think outside the square.
Nathan Birch, who has an investment portfolio of more than 200 properties, started from next to nothing. He purchased his first property in an affordable area with strong growth potential and rented it out. The cash-flow looked after itself and capital growth enabled him to use equity to purchase another property. He lived without “doodads” and even managed to feed himself lunch for one dollar a day. He says he “hustled himself,” working two jobs and pumping every dollar he could manage into his investing. By the time he was 24, he was in a position to leave the work force and live off the passive income from his investments. Now, at the age of 31, Nathan Birch is the champion of generation game-changer – the generation that, against all odds and statistics, overlooks the Australian dream and takes a savvy path towards financial freedom.
NATHAN’S ADVICE FOR GETTING INTO THE HOUSING MARKET:
1) CHANGE YOUR ATTITUDE.
“If you want to change your outcome, then you need to change your mindset,” says Nathan. It is possible for the average income earner to buy a property somewhere – maybe not a four-bedroom house in Sydney, but there are opportunities out there that can enable the average young Australian to enter the market and work their way up to their end-goal house.
2) BE WARY OF WHO YOU LISTEN TO.
Nathan says, “If you do what someone does then you end up with what they’ve got.” If you want to be successful as a property investor, take the advice of those who have been successful themselves – not those who have done nothing and say that what you are trying to achieve is impossible. You should also be very cautious of so-called experts who cannot prove their own success through the strategies they are trying to sell you.
3) THINK OUTSIDE YOUR OWN NEIGHBOURHOOD.
If you can’t afford to purchase in your current neighbourhood, consider other suburbs that are within your price range. Nathan says, it is still possible to buy a two-bedroom unit in certain areas of Sydney for $310,000 to $330,000.
4) THINK OUTSIDE YOUR OWN CAPITAL CITY.
You may live in Sydney, but there are opportunities for growth in other capital cities. Nathan says, in Brisbane and on the Gold Coast, it is possible to buy a five year-old, two-bedroom townhouse for $230,000. He says, Queensland is a state that offers a lot of growth potential. Its geographical size, as well as its infrastructure, means it can cope with high population growth. According to Moody’s Analytics, Brisbane real estate is 3.2 per cent undervalued. They anticipate price growth to jump from 3.83 per cent in 2015 to 7.58 per cent in 2017. This means it is possible to buy undervalued properties in Brisbane that have a strong upside for growth.
5) THINK OUTSIDE BUYING YOUR OWN HOME.
If buying a principle place of residence is out of your league at the moment, don’t give up hope, and don’t waste years trying to save for a property that keeps going up in value faster than your savings do. If you can afford to purchase an investment that offers a neutral to positive cash-flow, good upside for growth – and you can get it below market value, it will give you a much needed foot in the door to achieving your financial goals and being able to buy your own home a bit further down the track. But, you need to do it right and you need to make it happen – just buying an investment with good intentions will not guarantee success.
6) HAVE A PLAN.
Before searching for an investment property, make sure you have a clear idea about what you want to achieve. Write out your goals, assess your finances and calculate how much you can afford to invest. Devise a realistic strategy and identify what types of properties you should purchase in-line with your goals and situation. Find a mortgage broker who will give you the mileage you need to build a portfolio and don’t make any financial decisions without first consulting your accountant and a trusted financial planner. For a more comprehensive guide on what you need to do to find out if you are ready to invest, read how to know you are ready to invest in property.
7) KNOW THE RISKS.
Property investing carries risk, and it is essential to understand any risks involved before proceeding on the path. A trusted financial planner should be able to help you identify and mitigate any risks. It is also important to know what makes a good property and what makes a “dud.” Speaking to the team at BInvested will help you to know what to look for and what to avoid buying.
8) HUSTLE TO MAKE IT HAPPEN.
If you want to achieve financial freedom through property investing, you need to put in a lot of hard work to make it happen. Nathan advises investors to adopt a delayed gratification mindset and “hustle” themselves in saving every dollar they can for their investing.
9) ATTEND A MAP SESSION.
Before embarking on your investing journey, it is wise to discuss your plans with the experts. Attending a Binvested Map Session will enable you to identify your goals and financial capability and devise the best strategy to take in order to find success.