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Most of us would be familiar with the categorisation of generations – where people are classified based on when they are born. This is widely used in popular culture, where sociologists and consumer research organisations look to categorise and predict our likely social, financial and economic behaviours based on when we were born and in relation to how the world has changed around us.
Generation categories typically comprise of:
The Lost Generation – born 1883-1900
The Greatest Generation – born 1901-1924
The Silent Generation – born 1925-1942
Baby Boomers – born 1943 to the early 1960’s
Generation X – born early 1960’s to early 1980’s
Generation Y – born early 1980’s to the 2000’s
Generation Z – born around and after 2005
However, a new type of classification has made its way to our shores from overseas – and it has nothing to do with our birth date. Instead, it is about whether we can afford to buy residential property as an owner occupier. Those who cannot afford to do so, or those who choose not to, are aggregated into what is widely being regarded as Australia’s growing number of Generation Rent.
Housing Goals are Changing
It is no secret that first time buyers continue to get priced out of the market, and that it is getting harder and harder to get onto the property ladder as an owner-occupier. There are many reasons for this, including lack of affordability, accelerated house price growth, lack of desired supply and being unable to bridge the deposit gap.
In fact, research by Swinburne’s AHURI Research Centre indicates that around 4.5 million Australians now rent their homes, and renters range in demographic – singles, couples, families, the young and the old, so it pretty much affects everyone, everywhere. This figure is almost double to the number of renters in 1981, when the Baby Boomer’s started to enter the market.
The significance of this is what appears to be a noticeable shift in housing tenure behaviours. That is, more and more of us are renting because it’s too expensive to buy.
For instance, Swinburne’s research shows that around 600,000 of the 1.8 million in private rental accommodation have been renting for more than 10 years. That’s a long period of time to rent and may reflect, in part, the difficulty of trying to save a deposit while paying rent and meeting everyday living costs.
Furthermore, a survey of prospective first home buyers released by finder.com.au last December revealed that 1 in 3 people surveyed had chosen to rent rather than buy, despite record low interest rates. This represented a significant increase from the 1 in 10 reported in the previous survey and is a possible indicator of changes in housing aspirations.
Renting is not necessarily a dirty word
The harsh reality is, there is and will be a generation of Australians who will be permanent renters (by necessity or design), or they will buy their first home much later in life – certainly later than the Baby Boomers did.
However, this is not necessarily all doom and gloom. Yes, it is highly disappointing that many people simply cannot afford to buy their own home (the Federal and State governments need to fix this), but there are some benefits to renting that may help alleviate the disappointment of delaying home ownership, or not being able to become a home owner.
Specific benefits include:
No Mortgage Debt
One of the biggest barriers and turn-offs is the need for many borrowers, especially first time buyers, to borrow at or beyond their comfort levels. Apart from signing a lease and paying a bond, there is no long term financial commitment.
More often than not, it is cheaper to rent than buy – with buying including saving a deposit, paying legal fees and stamp duty, and of course paying ongoing mortgage payments.
With this removed, there’s less stress on finances, and with less net income devoted to housing costs there’s more money left over to spend, save or invest.
Buying means committing to an area for a minimum period of time, usually 5 to 7 years if you are looking for capital growth. If you sell early, you may end up being worse off if prices don’t move and you take into account your purchase and selling costs.
On the other hand, it is much easier for renters to move due to career changes, to get a better home or location,
and to perhaps even get cheaper rent.
You can also move into areas you can’t afford to buy into – like inner city areas or other popular suburbs.
Home owners are exposed to financial risks like interest rate hikes, negative equity, repossession, capital loss, default and adverse credit reporting.
As a renter, the most you’re likely to lose is your bond, although you must ensure you make your rent payments on time each month as this is something future landlords will be looking for.
No Maintenance Costs
When you are renting, repairs and maintenance is your landlord’s responsibility.
Landlords are also responsible for council rates and taxes, and building insurance. As a renter, you are required to pay your rent and other utilities like water, gas, electricity and telephone, as well as insurance if you want to cover your own belongings.
So despite what you might read in the press, it’s not all bad news when it comes to renting. It might not be everybody’s end goal, but there are positives that come from being a renter – the main one being able to afford to put a roof over your head.
However, to make renting more appealing and more equitable from a social perspective, and to help alleviate some of the downsides of renting, the laws protecting tenants could do with a bit of tightening up. This is especially so around things like lease terms, the ability for tenants to make minor alterations, keeping pets and the issue of eviction notices.
In other words, addressing these problem areas would help provide tenants with better lease tenures and encourage them (or better still, require them), to take as much care of their rented property is if it was their own. That way, everybody wins.
The article was provided by Peter Boehm, Finance Editor for Onthehouse.com.au.