Governments around the western world are struggling with the fact that Home ownership is becoming more and more out of reach for young first home buyers but is this just an inevitable condition of our economy or do the reasons go far deeper than just hyped up property prices?
I have been pondering this question for many months now. I was an advocate of the concept of using strategies around your superannuation fund to assist. The reason I supported this was because I liked the idea of incentives to encourage the younger generation to save more money, but should we have to do that? In danger of sounding like my parents, I think we should look beyond short term solutions and deal with the real problem, that is, the inability of the younger generation to save money.
No one can argue that times have changed from when we were young (I was born in 1961). Anyone who has children aged, dare say, between 10 and 30 would appreciate the new era of modern technology and the fast changing technological world that we live in (social media, Facebook, Instagram, the Internet and Google. The list goes on and on. Every person in this age group has a mobile phone or iPad or computer with access to the Internet.
How has this ‘New Age’ impacted on the younger generation and importantly, how does this impact home affordability? Well, the Internet makes life so much easier. You are constantly bombarded by advertising and very smart marketing techniques, all encouraging our Youth to spend, spend, spend. You can shop online, you can order food online, you can spend your money just about any which way online by simply the click of the button.
Heaven forbid, if you take cash out to a restaurant or Pub on a Friday night or even buy lunch or have a breakfast, you can simply paywave for those costs with a tap of the card! Spending money has never been easier for our youth and Marketing to them to spend has never been more sophisticated.
Everything in the world today is instant. News spreads instantly, communication is instant, shopping can be instant. The youth of today are not prepared to wait. They have been marketed to and conditioned to wanting and buying it now. Holidays, cars, clothes – you name it. Society is driven around spending, not saving. Therein lies the problem.
What this means is that our younger generation’s spending/saving habits have changed and this is making it even more difficult to save for a deposit on a home. So is it really that housing has gotten so far out of reach that our Youth cannot enter the market?
In my previous article, I argued that housing today (depending on the area) is really not that unaffordable and I proved that a couple on the average Australian wage can fund a mortgage for a medium priced property. Therefore, it’s just a question of Entry and saving for the 10 or 20% deposit and associated costs.
Example purchase price of a house is say $1,000,000. Assume deposit required 20% plus costs and inflation, say $250,000. That is, between two people, $125,000 each.
Let’s say that a young person commences work at age 20, earning on average say, $45,000 net of tax over a five year period to 25 years living at home with his parents. All they would need to do is put aside $25,000 a year over 5 years to allow for inflation. That’s $125,000 x 2 = $250,000, which is ample deposit. That also gives them $20,000 close to $400 per week of disposable income to spend on what they like.
The Real problem is Education both from parents and schools. We need to be teaching our children from a very early age simple economics. Teach them how to save and build assets vs spending. We need to arm them with skills to be able to withstand the onslaught of online marketing coming their way and to be able to budget and manage their money wisely.
The Government should introduce compulsory courses in schools at a very early age to provide this education. If we can encourage our youth to save more, they will achieve home ownership sooner. Personally, I know of younger people who, over a very short period of time and after leaving school, have saved up to $80,000 simply by working hard, resisting temptation of marketeers, budgeting and living within their means. They are now in the position to purchase their first investment property or have already acquired a property. There are always exceptions.
With all the amount of marketing, dollar being spent which is aimed squarely at our youth to encourage them to spend more, we must counteract this with education. In my view, the government, rather focusing on short term solutions like superannuation, should also look long term and introduce education into the system, and not only with children. The government should also look at offering the same opportunity to parents as they are a very important cog in this wheel.
The world is a very different place today from when I was growing up. The big brands will continue to bombard our youth to encourage them to spend their money via increasing exposure online. We must encourage our youth to save and if we deal with this as a society, home affordability will sort itself out.
I would be interested in your feedback. What do you think?