Don’t worry mums and dads, Generation Rent are OK
I’m moving in two weeks. Yep, it’s all cardboard boxes and roller tape at our house. Happily married for two and a half months now, we’re on to the next big adventure.
Buying the dream home with white picket fence? No. Not for us. Not yet. We’re signing a 12 month lease and moving to an apartment in the city to be closer to work.
You see, I’m part of Generation Rent – the generation the urge to buy property passed by.
Where our parents see rent money as “dead money”, Generation Rent baulks at the idea of becoming mortgage slaves, shackled to the high interest demands of a supersized mortgage. Interest paid to the bank is as dead as any rent money.
For this, we earn the rebuke that we’re too focused on “lifestyle”, too hoity-toity to move out to the suburbs and buy a modest, entry-level home.
Yeah, we’re lazy buggers, we don’t want to sit in smog-soaked traffic all day, schlepping to the city from the outer suburbs. We want access to vibrant inner-city community facilities. How selfish.
Hate to break it to you, but 20s and 30s somethings are busting a gut trying to climb the career ladder. The days of a job for life are gone. We change jobs more often than previous generations – meaning we need the freedom and flexibility to move more often and live close to work.
Tying ourselves to one home base means potential long commutes. And traffic congestion is a leach on the happiness of society.
Last year, The Economist magazine moderated an online debate questioning the benefits of high rates of home ownership. The findings are surprising.
Figures quoted by economics professor, Andrew Oswald, suggest there is in fact little correlation between high rates of homeownership and robust economies.
Indeed, one of Europe’s healthiest economies, Switzerland – which boasts a miniscule jobless rate of 3.4 per cent – has its lowest home ownership rate. As many as seven out of ten Swiss people rent.
In Australia, the percentage is reversed. Just three in 10 households rent.
Australia, in this way, more closely resembles the basket-case economy of Spain, where 83 per cent own their own home (with or without a mortgage), but one in four have no job.
Europe’s traditional economic powerhouse, Germany, is home to one of the next lowest rates of home ownership rate (although it has risen recently). In Germany, rental leases can last decades. So long, in fact, that it is not uncommon for tenants to provide their own kitchen (IKEA, perhaps).
Professor Oswald argues high homeownership rates are “like a treacle blanket thrown over the surface of the economy”. Owning a home discourages people from moving to find better jobs or finding replacement jobs if they lose theirs.
A more flexible economy demands a more flexible housing market.
The clustering of workplaces in inner city areas will also mean more demand for well-located, inner-city housing.
Often, in such areas, it can be more affordable to rent rather than buy the same property. Home prices are pushed up because of location, location, location. And rents can lag behind. Often, the rent you pay on an inner-city pad is cheaper than the interest cost of servicing a mortgage on the same property.
Better to rent, and invest the difference in a term deposit or shares, which outperformed house prices last year. Indeed, with affordability so stretched, it’s hard to see house prices taking off for some time.
Indeed, for most of Generation Rent, the real barrier to home purchase today is the need to save up that supersized deposit. It’s not just by choice, but by necessity that we rent. The ratio of home prices to incomes has doubled from around three times annual salaries back in the 1980s, to six times today.
Interest rates may be low, but that doesn’t make it any easier to save that 20 per cent deposit. In fact, low interest rates make it harder by reducing the return on savings. Then there’s stamp duty to consider.
So, it should come as no surprise that a new generation is waiting longer before taking the property plunge.
Far from frittering away our money, we’re actually showing a level of financial conservatism not seen since our grandparent’s generation. We’ll save now and minimise our debt burden later.
We’ll step on to the property ladder eventually, if it suits us. And if we don’t have to pay more in interest to the bank than it would cost to rent.
We’ll work longer – no retirement parties at 50 for us – meaning more income later in life to cover housing costs. And by then, we’ll have had the benefit of a lifetime of setting aside 9 per cent – rising soon to 12 per cent - of our income into superannuation to support us in a comfortable retirement.
For now, we’re happy renting.
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