Young Home Renters as ‘Permanent Renters’?

With house prices on a constant hike, and the number of homeowners steadily falling over the past three decades, some suggest that today’s young home renters will become permanent renters. In 1986, the number of young people aged 25-34 who owned their own home was almost 60%, whereas recent census data has seen that figure dip to around 45%, with a particularly noticeable fall over the past 10 years.

And while the struggle for young people entering the housing market has been well documented, the decline has also been felt among older age brackets, leading experts to believe that not only will it be later in life that today’s Gen Ys and millennials will be able to buy, but that they may never be able to buy at all. For single-income households, buying is almost entirely out of the question.

Supply and Demand

The demand for homes is sky-high. As our metropolitan populations across the country grow, the rate of construction simply can’t keep up. And while new developments are popping up on city fringes, inner suburban lots are becoming more valuable than ever. Added to this are the increasingly low interest rates and tiny minimum deposits, meaning people who are able to buy are taking out astronomical mortgages. Equity is increasingly becoming a necessity to be able to buy, further favouring those already in the market.

A Shifting Demographic Spread

What does all this mean for where you might be living? As the cities and desirable inner suburbs become exclusively baby boomer populated, young families and professional couples are being pushed further and further out. No longer is renting akin to student housing, spending a few years in a share house until completion of studies; it’s becoming the only option for a larger share of younger generations. We’re seeing a polarisation of demographic spread. Today’s children are more likely to experience their childhood in a townhouse or apartment rather than a traditional Australian backyard.

Increasing Rental Stress

But even renting is no walk in the park. As if it wasn’t enough that home ownership is soaring out of reach, many young renters are under extreme rental stress, paying between a third and half of their household income on rent alone. Affordability of rent for young home renters is in sharp decline for a number of reasons. In a society where we’ve been brought up thinking that with hard work and a good education, the world is our oyster, young people are having to work longer hours while studying, just to put a roof over their heads. Priorities are turning towards income at an earlier age, rather than careers.

A Financially Responsible Generation

And with this increased portion of income being directed toward rent, or saving for the elusive first home, experts have applauded today’s young home renters for being the most financially responsible. Compared to their parents, who spent more money on food and non-essential items like cars, household goods and clothes, today’s young people spend their money on housing and education first.

The Way Forward

While the market for first home buyers is tough, it is by no means entirely inaccessible. As more and more young buyers are looking further out of our city centres, the ‘outer suburbs’ are losing much of their stigma. Young couples and singles are turning towards off the plan apartments and homes in these areas for the notable advantage of a smaller upfront cost.

Once first home buyers have secured that first purchase, there is considerable opportunity to take advantage of this growth—what was once a barrier, can in fact be a positive. Indeed, there is a growing number of first home buyers who are choosing to avoid the traditional owner–occupier pathway, and instead opt to secure their first home as an investment while they continue to rent themselves.

After all, renting is becoming a more favourable option in many aspects. In October 2017, reforms to tenancy laws in Victoria gave renters more rights, including being allowed to keep pets, accessing smaller bonds to improve the affordability of rent for young renters, and negotiating longer term leases.

Regardless of the pathway taken, first home buyers must focus on research, getting to know their own financial limits, and taking a fresh approach to entering the market. While the trend may be growing in regards to permanent renting, it is certainly not to say that securing a home is off the table.