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The Falling Homeownership Rate

Did you know by 2040 only about half of people under the age of 60 will own their own home, according to forecasts?

Everyone’s heard about the Great Australian Dream. You’re probably picturing it now – a family home with a white picket fence and a big backyard in the ‘burbs. It’s what I and most Australians picture when we think of success and security. But in this day and age, Australians – particularly young Australians – are finding this dream of homeownership further and further out of reach. While the ownership rate has been stable over the last few decades (at 68.4% in 1976, and 67.1% in 2016), it looks as though there’s little chance these levels will hold. In a report from the Australian Housing & Urban Research Institute (they’re a national independent research network), it’s projected that by 2040, the ownership rate will drop to 63% for all households, and to not much more than 50% for households under 55. So, what’s changed? Affordability is one of the biggest factors, with house prices rising and wages unable to keep up. In 2018, house prices were a whopping 9 times the household income of 35-44 year olds, compared to 3.3 times in 1996. The inflation rate – the general increase in prices over a period of time – isn’t helping things either. It was at 3.5% as of April 2022, however, wages only grew by 2.3% in December last year. That gap means Australians’ incomes need to work harder for the same result. Another important thing to note is the changes in the labour market over the years, with more Australians working temp or casual jobs. Temporary employment made up 15.4% of the labour market in 1983, but by 2002, this had jumped up to 27.3%. Younger Australians are more affected by this too; they’re more likely to have casual jobs or work in the gig economy, and so they will be the ones less likely to be able to afford a deposit or be granted a loan approval from lenders. Finally, the reason why people are buying homes has shifted. It’s not just simply a place to live anymore; it’s also a financial asset, and more and more investors are buying homes for the purpose of renting them out rather than living in them. The report finishes off by saying Australia is probably not going to keep up its current homeownership rates as more people will turn to renting. This will shift the market from being dominated by homeowners, to having equal weight between ownership and rental. And not only will the average Australian not own their own home, but they won’t own an investment property to help fund their retirement. But this doesn’t have to be your future, and that’s where I come in. What does this mean for you, the average Australian? Firstly, for aspiring homeowners, their definition of the Australian dream is quickly changing. Victorian Premier Daniel Andrews acknowledged this shift in a recent interview with The Guardian. He suggested the ‘great Australian dream’ of owning a home was less important to younger generations, especially given the increasing cost of property (the median price of a home in Melbourne is now over $1m). “Not everyone has intergenerational wealth or the ability to act like a bank. So this is a really significant challenge,” he said. “We’re always talking about the great Australian dream, absolutely. But I get a sense, I’ve talked to my kids and their friends, they’re much more focused on perhaps living where they want to live and ownership is not such a big thing. They are happy to rent with secure terms.” Millennials no longer dream of living in the quarter acre block in the ‘burbs – instead, they want a better quality of living. Smaller, more affordable dwellings such as townhouses and apartments are becoming the norm for first home buyers looking to get into the market, so they can live close to where they work and maintain their lifestyle. Historically, however, prices of smaller ‘unlanded’ dwellings such as apartments haven’t performed as well as ‘landed’ dwellings, such as townhouses and houses. While more aspiring homeowners are getting their foot in the door through purchasing an apartment, the opportunities for capital appreciation (an increase in an asset’s value) are limited, which isn’t helping them set up for financial success at retirement. A small group of aspiring homeowners, called Rentvestors, are taking advantage of this opportunity cost by investing in affordable townhouses and houses in areas they don’t actually wish to live (outer suburbs, regional and interstate areas), and instead renting in their desired location. Learn more about Rentvesting here. For investors, this is highlighting a trend that Australia is becoming more like Europe and transitioning to a lifetime of renting. It’s why the demand for rental properties is forecast to surge, requiring investors to purchase more investment properties to add to the rental pool. How I can help out If we haven’t met before, I’m Oli, a friend and guru passionate about empowering everyday Australians on their wealth journeys. Knowledge is power, and I’m here to share mine with you (70 years of it!). There are plenty of ways to enter the property market, whether it’s as an owner occupier, investor or rentvestor. All you need is the willingness to learn, and I’ll give you the tools and insights you need to plan for your future. Are you ready to take these first steps together? Let’s chat or keep exploring the website.

SUMMARY Everyone’s heard about the Great Australian Dream of homeownership. But in this day and age, Australians – particularly young Australians – are finding this dream further and further out of reach, and experts predict the ownership rate will drop significantly in the next 20 years.

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