As if affordability wasn’t enough of a barrier, the fact that Baby Boomers and Generation X-ers are opting to stay put in their homes rather than sell, is making it harder for younger Australians – Generation Y – to get into the housing market.
While this is unfortunate for those who will have to remain tenants for longer – this is good news for property investors.
The fact is that a recent study by the Commonwealth Bank found that only 44% of Australian households have moved in the past 5 years, compared with 73% per cent a decade ago.
Craig James, the study’s author, said the results reflected the ageing population, rising moving costs and an increase in the number of people happier with where they lived.
“Once people have found their dream home they will stay there, but it’s interesting over the past decade, even among the home owners, there has been less propensity to move,” he said.
“That may be good for the Baby Boomers and Generation X, but if they don’t want to move, and state and territory governments don’t increase housing supply, then it really puts big pressure on Generation Y to find their homes, and at a reasonable cost.”
The data also showed only 15% of home owners without a mortgage had sold their primary residence, while in 1999 the number was closer to 60%, and 42% of mortgagees changed their address, a 25% drop.
“If you get people who decide to stay in their place for longer, it makes it very, very hard for renters and people wanting to buy to shift out of their accommodation and find the place that they want,” Mr James said.
Add to this rising rentals (making it harder to save for a deposit) and rising interest rates (making it harder to service a loan) and it looks like many Gen Y’s will remain tenants.
Over the years the rate of home ownership in Australia has remained much the same – around 70%, but putting all of these factors together suggests that in the future, more and more people will remain tenants. Of course there is nothing unusual about this – it’s just like what happens overseas, as cities mature they become more unaffordable. Fewer people can afford to buy properties, but this doesn’t stop property values increasing. Those in the market end up having more equity in their properties and they can afford to upgrade – it just gets harder for the new generation of home owners.
Will all of this stop property values from increasing?
No – property values will keep rising, but significantly more in some suburbs than others. As home owners and investors (and tenants for that matter) head for the inner and middle suburbs, areas where land is already built out, yet which offer proximity to workplaces, schools, public transport, shopping and entertainment facilities, rents and property values will keep increasing.
Of course there are always affordable properties in the outer suburbs and in regional Australia, but that’s not where most Gen Y’s want to live.
As a property investor, we want our properties to outperform the market averages, so it will be important to know the type of property that will be in continuous strong demand by tenants in the future.
So here’s my recommendation…with the Gen Y in mind, purchase 1 or 2 bedroom apartments in the inner and middle ring suburbs of our major capital cities, close to amenities, transport and lifestyle facilities. By the way… this is exactly the type of property we have been purchasing for clients at Metropole.
George Raptis is a director of Metropole Property Investment Strategists in Sydney. He shares his 22 years of experience in the property industry as a licensed estate agent and active property investor. Go to www.metropole.com.au
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