Youngsters and their views on property?

I certainly don't think its impossible to purchase an investment property. Save part of a deposit and use the ability to leverage to start building a deposit. Start small, build up and you'll fast be on your way. Some market momentum can quickly accelerate the process.

In saying that, i think there's a general sentiment of difficulty in purchasing your own first home from Sydneysiders. As both a broker and in the generation, i can certainly appreciate that when i sit down and talk to first home buyers and those looking to purchase owner occupied homes.

I think ownership of property is front of mind for many young Australians. Many people have little or no interest in the joys of purchasing an investment and would much rather simply purchase their own home and pay it off, then if circumstances allow, purchase their investment place. Given the importance of household assets to wealth positions for many Australians, this is probably a good starting point for many in itself.

In Sydney, a young family that wants to own a house - even on a good household income (150k+), will find it a little difficult to do so right now without making some significant sacrifices. I'm not so sure having 1hour + commute times is an acceptable sacrifice while maintaining decent living standards.

Running some numbers:

• $1mill purchase price (this probably gets you a $400-600k place in some of the other smaller cities).
• $900k loan - repayment in low rate environment of $4,500 p/m. Sensitise this to around $6k for a 1.5% increase in actual rates closer to 6%.
• Income: $150k less $40 in tax, around $9000 p/m.
• In either case, thats a whopping 50% of income going to shelter costs. Well over any definition of 'mortgage stress'.
• Leaves around $3-4.5k p/m for other costs, buffers, etc. Thats enough probably, but i'm not sure everyone will be sleeping easy at night knowing these numbers/risk levels.

That makes for some bleak reading for a high income household!

For those that may think $1m actually gets you a grand place - it certainly doesn't. You'll be 20-40 minutes away with decent access to transport and in suburbia. I grew up around here, definitely not a prestige area or anything like that at all. http://www.realestate.com.au/property-house-nsw-east+hills-120492693

So then after this process is gone through, the discussion about sacrifices comes in:

• How important is it to be 30 minutes distance to the city - maybe we could be 45mins.
• How important is a house, can the kids share bedrooms?
• Could i take up a second job?
• Could we move elsewhere (leave family, jobs, etc)?
• Should we even buy?
• Etc.

I'm not going to label someone entitled for thinking that their great degrees, strong incomes, etc would lead to slightly better outcomes than having to make these type of sacrifices. This could be a couple hotshot young lawyers with one kid, a doctor with a partner at home with kids, two hardworking people, tradies, etc - the numbers encapsulates the majority.

Having some empathy for many many young Australians doesn't mean you suffer from entitlement mentality. Kudos to all those young people that have crushed it and are doing well - i love hearing these stories. IMO its the best way to get there. But not everyone has the desire nor the risk appetite to do the same. Money/investment is not everyones cup of tea. This crowd is very very savvy about it all.

Those incomes would lead to strikingly different conversations in other cities. You could purchase a house almost IN the city across many other capitals (Brisbane, Adelaide, Canberra, etc). In Sydney, the same price will mean a serious commute.

Whether people agree or not - the answer to this is strikingly different for Sydney vs Adelaide/Brisbane. Given the centrality of living costs to household budgets, you may as well think of it as a Sydney tax.

 

@Redom that was a very good post.

 

true- @Redom

Send them up north to Brissy and their income will buy a mansion.
On a more serious note, I think there is a realisation even here in Brissy that in 10 + years time, it too will be out of reach- except the struggle streets, which is kinda the case in Sydney as we are seeing now.

 

Definately a huge commitment and cost to say you live in Sydney! With the mortgage stress and financial implications you really don't get to enjoy living in Sydney. However, its a great place to visit!

 

@Redom
great non emotional response.

Some countries where land is scarce, having a backyard you have to be bill gates, (HK for example), so eventually people are going to start thinking, "ok, backyard obviously isnt possible, lets get a courtyard nad we can take the kids to the park" this means townhouses, and so in sydney a OK placed 3br townhouse will cost $600k for example,

there goes any mortgage stress!

 

Not a youngster but bought my first place at 29, second at 34, a few months ago and plan on the third in the next 2-3 years. I never thought I'd ever buy a place but took the plunge and never looked back. Life is about calculated risks.

Thanks for the stories, peeps

 

Sydney Tax?
That's what you pay for the lifestyle and the higher income you earn in this part of the country.
Obviously not everyone can afford the Sydney Tax.

 

I wouldn't quite say lifestyle, and income is usually only 10-15% higher yet house prices are much higher.
It has to come down to supply and demand. I would say:
Supply is constricted due to natural barriers in sydney. Not so much in other cities.
Demand is strong because of jobs. Not as much in other cities.
The combination of these 2 are the biggest drivers, I think- amongst many other smaller drivers, for the justification of prices above the 15% or so compared to other capitals.

 

The Guardian reports that some of the problems in the housing market are down to older people remaining in large properties, whilst developers are focusing on apartments instead of houses.

Throw in new houses are being built in poorly serviced, fringe suburbs, and the problem escalates.

Looking at the figures that @Redom posted, the average house in Sydney is no way affordable. Even a unit is really going to be beyond the means of a typical couple. I believe median household income is around $90K (approx $75K after tax), and a median apartment is $700K.

Speaking of which, raising a 10% deposit would also be difficult, particularly with paying high rents. Sure, you might be able to live with your parents, but not everyone has that option.

The median rent for an apartment in Sydney is $500 / week. Living costs might be, what, around $1000 / month, so a ballpark figure for expenditure would be about $50,000 / year for a couple for the basics.

So my median household would take about three years to save for a 10% deposit on an apartment, whereas Redom's better off pair would need two years for a house. A 20% deposit would double this timeframe.

I'm not sure what the solution is. Possible strategies would be:

• Keep on saving, and buy once you find a property you can afford and fulfils your basic needs.
• Rent an apartment, and hope for a market correction.
• Purchase one or more IPs, and hope that the equity growth is sufficient to be larger than that of the place you'd like to buy eventually.

There are risks to all three. The first is probably the most conservative, the second and third are betting all on either a market correction or continuing boom. If you call it right you look like a genius, but get it wrong and it's going to hurt.

 

The biggest obstacle is certainly the deposit.

Everyone in this thread has based their figures on the median/mean Australia wide salaries which is absolutely not a reflection of the majority of young people. For example a graduate accountant is making about 50k (gross) a year for the first 3 years out of university. A lawyer is similar. As a tax accountant I see a very wide sample of people and I'd say that of people under 25 it's about 2-4 in 10 that are actually at or above the median salaries and as a tax accountant we generally see people in the better off situations (the simple returns don't need accountants).

So even using salaries that aren't entirely realistic, in my experience, it's a genuinely massive effort to save for a deposit. On a Perth median property of ~550k you'd need 110k for a 20% deposit. That's about 5 years of saving aggressively, with stagnant wage growth (for the lucky ones, most are going backwards), zero interest (most savings accounts are inflation or worse rates, aka losing money in real terms) and moving goal posts (find a 5 year period where it hasn't increased).

Even on that average salary your looking at about $1,150 take home pay (assuming no HELP debt, another reality for young people), that's $250 on rent and occupancy costs (if you're happy to live in a closet), $100 on internet, phone and insurances (not including income protection that you will have to take once you get the loan), $400 a week savings just to have that 5 year dream on the deposit. That's leaving $400 a week for food, transport costs and all other expenses, that's a pretty frugal lifestyle just to get together a deposit on a crappy house in terrible location, if you want something nice you're pretty much going to be living as a shut in for a good 6+ years.

I know as a relatively young person (30), the idea of having to stay in one spot, not travel or go out for 6 years so I can afford a deposit on a house is a pretty unappealing option. Knowing I can live that same lifestyle 12 months at a time and then travel for 6 months on that savings is, quite frankly, way more appealing. Especially knowing that I'm really just saving up so that I can mortgage myself into the same scenario for the next 30 years once I do have the loan! The idea of "saving once I'm making real money" is very real because of this time distortion.

Really there is a very real separation between wages and house prices right now across the country that just isn't sustainable for an extended period. When you price an entire generation out of a market you're asking for trouble and we're dangerously close to that point.

 

House prices/wage ratio does not paint the whole picture. Interest rates need to be factored in as well, which have been trending down in the last few decades.

It was only maybe a generation ago when the price of airfares meant the option to travel for 6months in a year was not possible for a young person just starting out. Many worked the same job all their lives (which is unimaginable to our generation) and bought their home as soon as they could. They prioritised home ownership.

The deposit is the primary obstacle but only in certain markets like Sydney and Melbourne where the median price is high. But places like Adelaide, Hobart and some regionals are still affordable, where you can get into the market with 50k give or take. That is entirely possible to save up for in a reasonably short period with a few lifestyle sacrifices. I have seen people in their twenties spend that amount on a new car then turn around and complain about high house prices. When one prioritises travel/car/tech/lifestyle and property is an afterthought there is little wonder they are constantly waiting for the next pay check.

Among my peers I've seen a clear division in the last few years. Those that went and bought a new car as their first big purchase have fallen way behind financially compared to those that went into property (Sydney market). Probably conservatively 150-200k in 3yrs.

 

All good and well, but you don’t need a 20% deposit. 50K gross is on the low side and I doubt lawyers are on 50k for 3 years, the ones I know aren’t. Creative tenacious people will always find a way.

 

I think there will be a trend of more young people staying at home for longer, which is already occuring. More and more people are now realising that it's smarter to stay at home for as long as possible (if you have an option to do so) and are delaying going out and renting a house. Instead they are living at home and saving for their deposits. A similar trend is emerging in the UK and the USA as well.

 

Most are staying home cause they're lazy and is easier to stay at home with mummy to make your lunch. How many are actually putting aside that 200-500/wk they would have to pay if renting or bought?
I know my bro/sis in law are doing it for cheap rent and convenience of not moving.
The real world may come as shock to some kids, bills, washing dishes, clothes, arguments over parking or general neighbourly love

 

Definitely. Not everybody is saving a deposit. A lot of them are just living at home because it's simply too expensive for them to go out and live independently. That's certainly the case for a lot of people in the US.

 

I saved 300k deposit staying at home till age 24 because I knew if I rented I wouldnt of got there as quick. If your parents have a sik set up and you have your own space why wouldnt you??

 

Well done, but your definitely the minority!

 

Yeah true, to expensive to move out but they'll happily get the flash threads and car, hopefully the flash stuff lasts till they move out cause there won't be cash available to throw at new cars!
I do miss the disposable income days! The stuff I bought simply cause I could I now shake my head at, but at the same time I look at it like securing a motor bike before having kids, cause asking the Mrs for a motor bike with kids would be a lot harder!

 

This is for graduate positions, the only positions that people under 25 are going to generally be eligible for (Law degree is 4 years, that makes you ~22 before you are eligible for a job), law ranges widely but most fall in the 50-60k range as graduates. All professions are jobs you make a lot more over time, a 30 year old is in the 100k+ range on those jobs and you'd hope to keep roughly doubling every 5 or so years, but for people under 30 to save the kind of deposits needed to finance without needing to spend thousands on insurances are highly restrictive to buying houses.

And yes, there are always ways around it for those who are desperate to get in (such as paying those insurances and just wearing it) but for most under 25s who don't have wealthy parents or well above average incomes for their age (ie. average incomes overall) it's going to be difficult and generally require you sacrificing actually living.

I don't blame young people for choosing to live instead, heck I'd generally recommend it, there are a ton of things you can only do when you are young and buying a house is absolutely not one of them. Go and do Macchu Pichu, backpack through Europe, spend a week in Cancun, hit up Vegas, do Sail Croatia, hit the music festivals. All of those things just get harder and harder as you age... buying a house on the other hand gets easier and easier if you have a good job!

Absolutely, there is no way I'd live out of home (at 30) if I had that option. It just makes no sense financially to move out if you don't need to, it's basically as much of a lifestyle choice as travelling a few times a year when you analyse the cost. Unfortunately it's not an option for a lot of people which just further widens the wealth divide in those countries where it is almost necessary.

 

That cracked me up. Well played.