Real reason millennials can’t afford a home
THE "Great Australian Dream" of owning your own home is further away than ever.
But a new Australian Institute of Health and Welfare (AIHW) report suggests millennials may be keeping themselves out of their market based on their own personal choices.
The report, released yesterday, found 67.5 per cent of households owned their own home, down from 71.4 per cent over the past two decades.
Over the same period, private renting has risen from 18.4 per cent to 25.3 per cent, and the proportion of households renting through state and territory housing programs has dropped from 5.5 per cent to 3.5 per cent.
"Australia is experiencing generational change when it comes to home ownership, with younger households being affected by factors such as economic constraints, lifestyle choices and work-home preferences … therefore limiting their ability to become homeowners," it states.
In other words, millennials may be pricing themselves out of the market by spending their money on higher rents to live closer to work and a better lifestyle, rather than saving.
But a number of studies have found that millennials actually save money better than previous generations did.
New Westpac Life data shows that the most popular goal for the bank's 25-34 year old customers is saving for a home, with 10 times more money put away for that purpose than holidays or travel.
Kathryn Carpenter, Westpac's Head of Savings, said the myth that millennials wasted their money on "lifestyle choices" like smashed avo on toast and travel was not represented in the research.
"Millennials are often depicted as a generation more focused on life experiences and living in the 'now'," she said.
"However, our research shows that many are in fact taking saving for a home deposit seriously and prioritising it above other goals including travel or lifestyle."
An ING survey released last month showed that more than a third of millennials are saving to buy a home in the next three years.
But it also found the average nominated deposit was just $76,000, which, on a loan-to-value ratio of 20 per cent, would buy a property worth $380,000 - a figure well below the national average of $570,249, let alone Sydney's median price of $1,033,892.
As for the millennials that do seem to be boarding a plane every six months, there may be an explanation.
For one thing, the cost of travel versus property over time has vastly shifted.
In 1981, the cost of a flight to London would have been $9452 in today's money, while a 20 per cent deposit on a median-priced house in Sydney was $60,809.
Today, that flight to London costs $1300, and you'd require a 20 per cent deposit of $206,778 for a median-price house in Sydney.
When you throw in ample student debt, a lack of employment opportunities and an increasing trend towards renting due to out-of-reach property prices - as laid out in the AIHW report - it's no wonder young people are jumping on planes instead of scrimping for a deposit. A short trip is financially manageable for young people, but affording a house is immensely difficult by comparison. For previous generations, the reverse was true.
The report also pointed to factors including a decreasing number of new housing allocations, increasing tenure length in public housing, changes in state and territory housing programs and a falling public rental housing stock.
The report found that housing affordability in Australia has broadly declined since the early 1980s, while the demand for sustainable, affordable housing continues to grow.
It also notes that Sydney prices have seen the steepest rises, particularly over the last five years, and remain the most expensive.
Domain data released yesterday found it takes first-home buyers an average of 6.7 years to save up a 20 per cent deposit for a median home.
Even in Hobart, which has the lowest median half price - less than half of that of Sydney - it would take buyers an average of 3.3 years to save up a 20 per cent deposit for a $300,000 home.