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Buying a House: Baby Boomers vs Millennials

 Quit being entitled, forget about dishing out cash on exotic holidays overseas, and stop indulging in “the evils of hipster cafes” by eating too many smashed avos and sipping soy lattes – this is the advice offered to Millennials hoping to save up enough money to break into the housing market in Australia. 

Unsurprisingly, this type of talk has received massive backlash from enraged Millennials who don’t feel they should need to compromise a happy lifestyle for their dream of owning a home, and don’t agree with being labelled as a generation far more frivolous with their spending than their parents.

So have Millennials been dealt a hand they don’t deserve?

All the evidence seems to suggest that young people and first home buyers are trying to enter the market at a truly challenging time, mainly if they want to live in big cities with soaring property prices like Sydney and Melbourne:

  • In the December quarter of 2016, the Residential Property Price Index (RPPI) recorded a 4.1% rise in residential property prices across Australia, with median house prices in Sydney sky rocketing into 7-digit figures.
  • The Reserve Bank of Australia says Aussie families are struggling to make their mortgage repayments, as people become more vulnerable to increasing household debt, price rises, and relatively stagnant wage growth.
  • And property experts CoreLogic say it’s no wonder Millennials are increasingly dependent on their parents to afford a house deposit and handle expensive interest rates, in a market that is geared towards investors, cashed up Baby Boomers and Gen Xers.

If you are a first home buyer, check out our comparison table below which features a snapshot of the current variable home loan providers, with links direct to the providers website. This table  has been formulated based on a buyer living in NSW taking out a $500,000 loan, with 80% LVR, repaying both principal and interest, sorted by Current Rate (lowest to highest).

So what is the solution to the so-called ‘housing affordability crisis’ hitting young people and first home buyers, and is the housing affordability crisis really even a thing?

We talked to the Canstar team and found some Gen Yers who are interested in buying a house, and also a few Baby Boomers who’ve had their fair share of time in the property market.

Read on to hear their thoughts on housing affordability – you might be surprised.

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First up, the Millennial perspective

Housing affordability coverage has been a hot topic of discussion recently, and now it’s time to hear from a few Millennials about the reality of them saving up and buying a house.

Millennials or Gen Yers are generally defined as the generation born in the early 1980s to mid-to-late 1990s.

April Broadbent

April is currently renting a small apartment in Brisbane. She hopes to enter the property market and buy a house sometime in the not-too-distant future.April Broadbent

“I think the market is set up for investors and people who are already established with their own property. It’s very hard to break into, in that someone with an average salary and full time job would probably struggle to either get into a unit, a good rental, or be able to save enough while also renting to be able to put down a house deposit. I’ve done the numbers for myself, and I wonder how anyone does it.

 

House prices are going up, but wages haven’t been going up in proportion to the cost of living. This means that people now have to make even more sacrifices in their lives to have the same financial security that an equivalent person in the Baby Boomer generation would have had to.

 

The current market, with capital gains tax discounts and negative gearing, serves Baby Boomers. It’s incentivising people to use property as investments, which influences developers to target their developments towards people trying to buy property as investments, rather than trying to reach the broad spectrum of everyday people.

 

The main problems are in Sydney and Melbourne, but that doesn’t mean there aren’t entry level barriers in other places like Brisbane, particularly if you are competing with investors. The reality is that people would probably move out of the cities to regional areas if there were job prospects that lined up with what they wanted to do. So there should be more high density city housing that’s affordable – not fitted out with the latest and greatest, but that has everything you need at a reasonable cost.

 

In terms of our spending habits, obviously when it comes to going out to brunch every day, no one really does that except for people who already have a lot of money. I think if the people saying this actually spoke to the average person they would see that you shouldn’t have to sacrifice your quality of life – things that make you feel like you’re able to have a degree of fun – in order to gain long-term financial security.

 

Some people are lucky enough to be able to help prop up their kids (e.g. by paying for a deposit), but that’s not the same for everyone. There’s a better solution, I think, and that is how governments provide incentives for different kinds of property buyers. I think the Federal Government should intervene in the market to make it more of a owner occupier friendly market, rather than an investor friendly market, which is what it looks like now.

 

There’s nothing wrong with renting, but obviously it’s pretty reasonable for people to want their own property because it changes what you can do with your life.”

Harrison Astbury

Harrison rents his place with a few housemates, and plans to buy property within the next 5 years with the help of his parents.Harrison

“I think what Tim Gurner said about the $4 coffees and smashed avo was blown way out of proportion. While it was a bit out-of-line to suggest all Millennials are blowing their money on frivolous things, I think his underlying message was pretty good. I think what he meant was that you have to be willing to make a few sacrifices – critics of his comments took it way too literally.

 

It’s definitely harder to buy a home than it was, say, 50 years ago, but I do think the quality of housing has improved. You don’t see 2 bedroom fibro shacks or ‘starter homes’ in cities much anymore, but Millennials should still aim for something a bit more… ‘basic’ than what their parents are currently living in. I think some people my age expect to get a 4/2/2 house in a nice suburb straight away in a capital city, when this is simply out of reach for most people.

 

With my first property I plan to purchase a 1 or 2 bedroom apartment close to the Brisbane CBD. They can easily be found for less than $300,000, and with the glut of apartments being built, I imagine prices will decrease in the coming years. I plan to use this to ‘get my foot in the door’ and to build equity, and then think about a grander home later in life.

 

Going regional is also a consideration of mine, but the big problem is finding a suitable job.”

Sam Bloom

Sam is renting with three other housemates in Brisbane, and isn’t thinking about buying a house in the near future. He studies engineering full time and works on a part time basis.Sam Bloom

“It’s definitely a lot harder for us Millennials to afford to save for and buy a house at our age than it was for our parents at our age. This is caused by a combination of rising house prices, lower house stock, and slower wage growth.

 

There is a housing affordability crisis. It’s obviously worse in some cities than it is in others – it’s a lot worse in Sydney and Melbourne than it is in Brisbane or Adelaide. Sydney house prices are way worse than the national average. If you’re trying to buy a house in Sydney then you’re screwed – move somewhere else. People trying to afford to buy a house in Sydney, or even rent there, are just crazy – it’s just not going to happen.

 

I think calling us ‘entitled’ is a load of crap. What many older people fail to understand is that living in the age of the internet and the age of our modern economy, living in a city is becoming more and more of a necessity rather than something you want to do. So for a lot of people who now need to be university educated or educated in some way, you have to live in the city to get work that takes advantage of your skillset. Lack of job opportunities is one of the main things that would stop me moving out of a major city.

 

There needs to be more done at the Federal Government level to help young people get a foot in the market, like abolishing preferential tax treatment from investing in properties. The housing market is unfairly skewed towards investors, but it’s not the only problem.

 

There’s also a lack of supply in terms of new housing, which I think is a fault of public policy. And that’s being addressed, because in Brisbane there’s a whole lot of new apartment stock that’s being built at the moment, so I’m guessing in like 5 or 10 years time we will see a lot more supply which will make it easier for people to buy apartments or start renting more, and renting cheaper.

 

And as for the smashed avo debate? I think it’s just silly.”

Are you considering investing? Check out our comparison table below which features a snapshot of the current providers offering investor home loans, with links direct to the providers’ website. Please note that this table has been formulated based on an individual applying for a $600,000 loan in NSW, LVR of 80%, repaying both principal and interest, whilst sorted by comparison rate (lowest – highest).

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And now let’s hear from the Baby Boomers

A few Baby Boomers from the Canstar team share their thoughts and experiences on the housing market and the so-called ‘housing affordability crisis’.

Baby Boomers are generally defined as the generation born between the early-to-mid 1940s to 1960.

Lynne Cawley

Lynne is a home owner in Brisbane with two children.Lynne Cawley

“The problem with housing affordability depends a lot on where people want to live. You can still get affordable housing outside of the major cities. In Brisbane you can still get a house for $350,000 if you want to go out further, but a lot of people don’t, and unfortunately that is the kind of choice you have to make. Even in the Baby Boom it was more expensive to live in the city.

 

I don’t think Millennials are just spending all their money – I don’t think that’s true. For instance, years ago travelling overseas on a cheap flight to Europe was unrealistic. We looked into going overseas for an event and it was going to cost us $17,000 for myself, my husband and two kids. That was just the price of flights back then. So we didn’t have the option to fly overseas because it was a real luxury, whereas now it’s so affordable. With all these flight and holiday deals now I think, “Why wouldn’t you go for it?” Why would you buy a house and let it sit there, paying it off, and miss out on being a bit ‘frivolous’?

 

If Millennials are looking to save for a house or monitor their spending a bit better, here are a few tips from me:

  • Don’t buy coffees everyday, because it adds up. Take advantage of coffee machines at work, or if you do buy a coffee, make it a treat rather than a regular purchase.
  • Take advantage of new technologies. Order an Uber instead of catching a taxi. Don’t pay for a hotel when you could try Airbnb.
  • If you don’t think you are very good at saving, put money into a savings account you can’t touch.”

Roger Mai

Roger is a home owner in Brisbane with two children.Roger Mai

“Housing affordability in a nutshell is houses where people want to live and want to buy, they can’t afford. It’s always a conflict of what’s reality, and what’s my expectations, and those two often don’t line up. Being willing to compromise is perhaps what’s really driving this housing affordability crisis.

 

The potential first home buyers of today have a very different mindset to what it was when I was that age. There is a certain element in that age group of early-mid 20s to mid 30s where they seem to need the house and have everything else as well. They want both, but they can’t afford both.

 

It also seems to be a growing trend nowadays that young people will have a job for a few years and then go on to something else. There is so much change in their lives, and that’s not very good from a lender’s point of view. If a lender is going to give you a mortgage that takes 25 years to pay off, they will want to see some stability in your workplace life and in your attitude to work. The problem with that is lenders really haven’t changed their basic way of viewing an application for mortgage from when I was that age. The products may be different, but the lending principles are still the same.

 

If you are looking at incomes versus the average house price in Sydney, then yes, Millennials certainly do have it harder than we did. The job market is hard, as contract and part time work become more of a fit for the market than full time employment. Families also are a lot more reliant on both parents’ income now, and adult kids are staying home much longer because they can’t afford to go out on their own.

 

It’s unfair, but that’s just the way things are.”

Nicola Seaton

Nicola is a home owner in Brisbane with two kids, and has previously lived in Sydney.Nicola Seaton

“When I was in my early 20s my sister and I bought a little 2 bedroom house together in Marrickville, Sydney for $103,000. I had no savings, so we maxed-out our credit cards and had  95% funding from the bank. We then sat through the subsequent appallingly high 17% interest rates – we couldn’t go anywhere or do anything, but we were paying the mortgage and that was about it. Having managed to get into the market, we then sold that one and moved into another house.

 

To say there is a housing affordability crisis throughout Australia is crap. There is probably a crisis in big cities where people want to go for specific jobs or opportunities, like Sydney or Melbourne, but you can get a job and buy a house in any number of regional areas. They are probably not as desirable, though. But even in Indooroopilly, Brisbane you can find affordable 2 bedroom apartments, which to me doesn’t indicate a housing crisis; it indicates an opportunity for someone who can actually get in the market and who has the ability to put down a deposit.

 

Australians have just got to get their heads out of this idea of owning a quarter acre block with the house, the four bedrooms, and the swimming pool. If you go to Europe people don’t live like that, and they are quite happy and their children still live a well-balanced life – they still play football, ride bicycles and all those sorts of things. I think we just need to stop using our urban land to put single houses on, and instead look at much smarter, medium density living close to cities.  If that’s where people want to be and if we want to buy houses, then we need to build smarter accommodation that is properly planned, and has the right amenities.

 

And I’m not sure it’s an entitlement issue of young people spending their money on travel and food – I think there is just this expectation that a lot of people are doing it. But you can’t do these things and afford to buy a house in a city suburb that’s groovy and “in demand”. It is the same as how I don’t buy, and can’t afford to buy, high-end designer clothes. You just make a choice and set your priorities to work out what you would rather spend your money on.”

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