Millennials are arguably the most economically important demographic on the planet, but they have traditionally struggled to get onto the property market. In Australia, it seems like that trend is being bucked. Why?
Regardless of the metric that one chooses, it is inarguable that the property market is booming in Australia. Home loans, house prices and auction prices have never been higher. On face value, it’s a great time for anyone associated with property in Australia.
For one key demographic, however, this time has been an unexpected boom. Those aged 25 to 40 in other parts of the world have been frozen out of the housing market, but Australia seems to have bucked the trend, as a combination of low interest rates, government incentives and, yes, even the COVID-19 pandemic, have come together to create a ‘perfect storm’ in Australian property.
Do Millennials still want to own property?
First home buyers often line up directly with the Millennial demographic. The younger Gen Zers tend to be too young to have accumulated enough capital for a deposit, while the older Gen X and Boomers are already on the property ladder. The Federal Government has gone out of its way to try to get people into property: they offered up cash via the First Home Loan Deposit Scheme and HomeBuilder that saw the amount required to get a deposit halved, and removed several of the barriers that were keeping people out.
Furthermore, low interest rates across the board have seen loans become more viable than ever for those on regular incomes. Rents dropped slightly due to the pandemic – especially in Melbourne and Sydney – but the old adage that rental money is dead money still holds.
Current barriers to home ownership
While there is the so-called ‘perfect storm’ for first home buyers, the barriers that are keeping Millennials out of the Australian property market are still considerable. The huge spike in property prices has seen the amount required for a deposit rise, and even in market in which the government is willing to back young people and contribute to their first home deposits, the price rise has been so fast as to price many out. Home loans still remain beyond the income of many young people.
Biggest challenges young buyers face
Younger generations are also far more likely to have accumulated wealth and to work in precarious industries like hospitality, food and beverage, travel and cultural industries that have been hard hit by the pandemic. The majority of those that lost their jobs during COVID were under 40, which pulled the plug on any plans that they may have had to enter the property market, as well as removing the security that lenders require to offer substantial loans such as mortgages.
Is housing affordable for the next generation?
With rents in big cities going up and vacancy rates lowering, Australia is an increasingly difficult place to rent. That is sending Millennials towards owning their own homes, but the affordability of housing is still a large problem for younger generations.
In big cities, where the majority of young people want to be, the only option for most is to move to peripheral areas that combine access to big city CBD districts, as well as restaurants, bars and other entertainment amenities with lower property prices. As such, near-regional areas such as Geelong and the Macedon Ranges in Victoria and the Central Coast and Wollongong regions of New South Wales have seen prices rise steeply as young people seek that combination of city life and property ownership.
House, unit, or land to develop?
The other equation that Millennials face in looking to buy a home is what kind of property they are looking to buy. As the average age at which people have children is rising, more and more people are considering apartment living are a longer-term option than the traditional move to the suburbs and a detached house. The Australian Dream of a quarter acre and a Hills Hoist is increasingly being replaced by a city unit with on-street parking.
While the dream is not dead, house prices in Sydney and Melbourne have seen the house with garden simply move beyond the budget of many city workers. The idea of developing land instead of buying a house outright is also less popular, with only those already living in regional areas realistically having that as an option.
Will remote work mean a boom in overlooked suburbs?
One of the factors that does work in favour of the Millennial demographic is the shift towards home working. Due to the pandemic, many businesses realised that their employees could work productively and effectively from home, and have thus allowed remote work to continue even into the post-COVID environment.
That, in turn, has led many young people to question their reliance on the city as a residence. Without the need to commute into a CBD area every day, and with reduced need to big city amenities, many have sought to move to regional areas to enjoy the accessible property prices, slower pace of life and more homely surrounds. This was happening before the pandemic, but was accelerated as the charm of the big city wore off in lockdown.
Brokers and sellers have added to this, with real estate websites now offering remote viewings: virtual house tours and Zoom meetings are now the norm rather than the traditional methods.
Is housing an investment strategy for younger buyers?
The third option is even more extreme. ‘Rentvesting’, in which Millennials continue to live in rented accommodation in big cities, but access the property market as investors in regional areas, has taken off in recent months.
It is another example of the ‘perfect storm’: rents dropped as many left, sending vacancy rates in Sydney and Melbourne higher than expected levels, while dropping significantly in regional areas as those leaving the cities bought up property and took it off the rental market. That has created a situation where those in the city can buy a house in a regional area at a more affordable price and rent it out in a renter’s market – allowing their tenant to pay off their mortgage for them - while keeping their city home as their primary residence and enjoying all the benefits of big city life. For many Millennials, this chance to join the property market without having to deal with the many hurdles of home ownership, is too good to resist.