Has a whole generation been priced out of our property markets?
Social researcher Mark McCrindle says while generational warfare over property is nothing new, the vagaries of the argument have changed.
Gen Ys’ are growing up realising they might have missed out on affordable housing.
At the same time job availability is sliding and access to welfare is shrinking.
Meanwhile some Baby Boomers — Gen Y’s bosses, parents and politicians — suggest the solution is to sacrifice, work harder, and whinge less.
Is it that simple?
In a recent Real Estate Talk show I asked this question of futurist and social researcher, Mark McCrindle.
Here’s a transcript of the interview:
Kevin: Have Baby Boomers actually priced Gen Y’s out of the market?
Mark: In a lot of ways, they have.
The Baby Boomers have done really well in property.
They essentially got into property when it was very affordable, certainly by today’s standards, and they’ve seen that asset pretty much triple in value in their ownership.
It’s been a 50-year economic miracle that they’ve lived through.
They’ve seen their own wages rise, they’ve seen prices relatively pretty low, they’ve hardly been through a downturn, and they remain in this era where they can work later and accumulate longer.
Also, their retirement benefits in terms of tax and the like have been pretty good.
That’s been the perfect economic storm for them.
Compared to their children, now – the Gen Y’s starting out – the Gen Y’s certainly have it tougher in property.
Kevin: So you believe there’s some foundation to that, the fact that it is a bit tougher to buy a property than it was, say, in my days.
Mark: That’s right.
Normally, as one generation was easing out of their property ownership, that would free those properties up for the next generation to hit the suburbs.
But what’s happened with the Baby Boomers is they largely did buy properties in the suburbs, but right at the time that they’re becoming empty-nesters, they’re certainly not looking to head off into retirement; they’re looking for a more suitable place.
They’re starting to head to those units.
They’re starting to head to more of the urbanized areas, to be closer to our cities, and they’re actually competing with their children.
This is right at the time that the Gen Y’s are looking for those same properties, those units that they can afford close to work and the like.
Once again, you’ve got the Baby Boomers almost bidding against their children’s generation.
That’s what seeing the unit prices rise.
Kevin: I have to say, though, that there were a number of things working against my generation when we went to buy property.
Finance was nowhere near as easy to get as it is today.
I do remember that in those days, too, the banks would only ever look at the principal money-earner.
Even if they were husband and wife working, they would still only take the husband’s wage as being an offset against the loan.
Mark: That’s definitely true.
Baby Boomers well remember those well over double-digit interest rates.
The majority of Gen Y households looking to buy a property have two incomes, plus they’re more than twice as likely to have a uni degree as their parents, so that gives some capacity for ongoing earnings and flexibility.
Their parents helped them through university and let them stay home longer, so we can’t forget that.
Of course, the Gen Ys have got longer longevity.
They’ll be able to work across different careers and reinvent themselves.
They’re starting their earning years with superannuation, which their parents didn’t have, and it is a very stable employment market at the moment – quite low unemployment in historical terms – so they have a lot going for them.
That’s for sure.
Wages are rising, and they’re starting their earnings at the highest graduate salaries that have been seen.
They have a lot in their favor, as well.
It’s just that as the demand for property has exceeded the supply, properties are a lot higher than ever before, relatively speaking.
Kevin: Making another comparison – I’ll be keen to get your thoughts on this, Mark – expectations.
I know when we purchased our first property, we didn’t have enough money to even outfit it with furniture.
We didn’t have enough money for curtains.
We only just scraped through getting in.
I sometimes wonder if the expectations today to get absolutely everything up front might be just a little bit too high.
Mark: I think that’s a fair call.
We were writing a report on this recently, and we said that many in this generation – these Gen Y’s – expect to start their economic life in the manner in which they’ve seen their parents finish their economic life, in the nice part of town, the nice units.
As you said, Kevin, that wasn’t how the boomers began.
It was the little flat.
It was the outskirts of town.
Forget the latest Ikea furniture.
It was the milk crate as the coffee table, or whatever it was to get by.
Kevin: Actually, it was. That’s what it was, and beanbags.
Mark: Beanbags, yes – that’s right – and borrowed furniture.
Now, everyone wants to start new.
“Forget the hand-me-downs. I’m going to get my new stuff. Thanks for the offer, but I want to have a bit of lifestyle.”
Definitely, those expectations – we call it expectation inflation – has risen much faster than price inflation, and so there is a reality check needed there.
It is a difference in attitude.
The Baby Boomers were not comfortable with a lot of debt or credit.
They wanted to save and buy and own, whereas we have more of a lifestyle attitude coming through now where you have to live in a place that’s going to work for you and close to work and it has to have that lifestyle – not as much prepared to start in those outer ring suburbs.
Kevin: Mark, what about the great Aussie Dream?
“I have to own my own home.”
Has that changed?
Is there a social shift?
Mark: It is changing a little bit.
Partly, the affordability challenge is driving that.
You have a generation now that is saying, “Life’s a long time, and we are going to earn later. Let’s just focus a little bit on work-life balance and on the lifestyle aspect.”
It’s a generation that has more mobility around career, and that’s not just in terms of the types of work they take on but the places they work.
It’s a global generation.
They’re going to move in and out of study.
Sometimes, having a property can lock you down into the one area and obviously financially.
It’s not as much of a single driving factor for them.
If you are global and mobile and digital and entrepreneurial, then there are other things that you can invest in – perhaps, starting one’s own business or perhaps investing in things that are a bit more liquid.
That might be some shares and the like that you can move around a bit more.
It’s a bit of a mindset of renting not owning.
That’s not just around property, but even cars, with the car share options.
Even with phones, you never actually own them.
You have them for a couple of years; it’s all about the plans.
It’s a generation a bit more focused on the intangibles – travel and experiences – compared to the tangibles of their parents.
Kevin: It’s a bit disposable, too.
You talked there about phones.
We’re quite used to turning our phones over every two or three years, and they just become disposable.
I wonder if that’s the way we sometimes look at living, too.
I think we have to realize, as well, that there are parts around the world where people just never even think of owning a property.
We have this expectation that our kids have to own their own home, but maybe that’s not necessarily the way forward.
Mark: That’s right.
It is just so impressively hard for an individual to save up for a mortgage these days.
With the moving in and out of study and the like, to actually get approval for that loan, it’s getting tougher, so parents and others have to help out.
Some people are saying, “Maybe I will look at other ways of getting a loan and other financial approaches to life.”
The Aussie Dream is not mainstream for all.
In fact, we found that there are even changes in renters.
There used to be two categories of people, those who can afford to buy a home and then everyone else is a renter, as if they’re in that second tier of income, but that’s not the case.
About 30% of Australian renters, particularly the younger ones, are what we call choice renters.
They’re renting not because of affordability reasons but because of lifestyle reasons.
They want the flexibility and the lifestyle that renting gives.
Kevin: Always good talking to you, Mark McCrindle.
Of course, Mark is a social researcher and futurist.
Mark: Thanks a lot, Kevin.
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