Ownership answers for ‘Generation Rent’

Jake Shotton and Jordan Williams celebrate the purchase of their first home. Photo supplied by Jordan Williams.
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While it is easy to claim young Australians are locked out of the property market because policy initiatives favouring investors have driven up prices in desirable areas, could there be another cause? Yasmine Lomax reports.

In a single story, four-bedroom house in Moorooduc, Trevor U’Ren celebrates his 53rd birthday. His three children sit around the table, beaming faces flickering in the candlelight from the chocolate cake Trevor’s wife of 26 years, Kellie, carries precariously.

It is the Australian dream captured in a moment; marriage, children, and property. And for Mr U’Ren, building this dream began 31 years ago.

“I bought a one-bedroom house as an investment when I was 22 and living at mum and dad’s,” Mr U’Ren says. “I sold that to my sister and bought a two-bedroom unit which Kell and I lived in before we got married and bought a house in Glen Waverley.”

“I would’ve been 26 when we bought that house together,” Mrs U’Ren adds. The house was purchased for approximately $131,000 in 1994 with a deposit of $40,000 at a time when the couple had a combined income of around $60,000. When they made the move from Glen Waverley to Moorooduc, the U’Rens rented the property to tenants for $150 a week before selling it after five years for $136,000.

Trevor and Kellie Uren are long-time home owners. Photo Yasmine Lomax.

The story is impressive but one that would be more difficult to replicate today. In the 1990s, the average first home buyer then was 27 compared to 31 in late 2017. Moreover, the private rental sector grew 38 per cent between 2006 and 2016 which experts largely attribute to the impenetrability of the Australian housing market. This means it is unlikely that the couple’s eldest daughter, 21-year-old Sarah, will follow in her parents’ home-owning footsteps anytime soon. After all, her Generation Y have earnt themselves the nickname ‘Generation Rent’. While it is easy to claim young Australians are locked out of the property market because policy initiatives favouring investors have driven up prices in desirable metropolitan areas, could there be another cause embedded in our culture? Should we perhaps be looking at the employment patterns of Generation Rent?

Labour mobility

“Gone are the days when you’d be employed somewhere for 20 years,” Mrs U’Ren says. She is right. ABS labour-mobility data shows that 20 to 24-year-olds are three times more likely to change jobs in a year than 45 to 54-year-olds. A representative from NAB’s home lending department explained this could be detrimental to young Australians’ ability to secure a home loan.  “For those seeking a home loan, we look at credit history and income. We ask for at least six months of pay slips,” they said over the phone. Six months of pay slips enables the bank to determine whether the potential buyer has regular, steady income that will allow them to make loan repayments. Clearly, a new job every few months is unlikely to impress. So why do Gen Y keep moving about?

The best deal

McCrindle Research found that Gen Y Australians value “fun and enjoyment” and focus on “outcomes rather than processes”. They are also known to organise work around social life instead of the other way around. These traits stand in stark contrast to previous generations like the Baby Boomers who are staunch believers in working your way to the top. Furthermore, global research by Aethos Consulting Group found that while Gen X and Gen Y have similar career priorities, Gen Y are more flexible in their goals and are primarily concerned with direct cash compensation, work-life balance, and work benefits. Therefore, they are abandoning the old paradigm of slowly and steadily climbing up the corporate ladder and are instead shifting workplaces to find a job that will give them the most benefits in the short-term.

However, it is unlikely the high labour-mobility rates amongst young Australians is

solely down to their search for the best deal.

The casual work problem

Today, 75 per cent of Australian teenagers finish Year 12 with 30 per cent going on to higher education, a choice that may explain their high labour-mobility rates.

Claudia McLoughlin, 22, falls into the category of school leavers moving on to higher education. After graduating from a Catholic high school in Mornington, Ms McLoughlin went on to study a Bachelor of Arts degree majoring in Professional Writing and Editing at Swinburne University of Technology before transferring to a double degree in Science and Arts at Monash University. The decision to pursue further study has greatly shaped her work life

“I’ve had to work casual jobs because I’ve been trying to balance uni and work which is really hard,” she says.

And it is not just university students turning to casual work. In an opinion piece published in The Sydney Morning Herald, Mark Bouris, chairman of financial services group Yellow Brick Road, claimed Gen Y collectively have a “ready acceptance of casual, contract and project employment”. But casual work isn’t idyllic.

“Flexibility has always been fine but I’d prefer more hours,” Ms McLoughlin says of her past work experience, which involves roles in retail and cleaning. “One job wasn’t very reliable; they wouldn’t contact me for months and then ask if I could work the next night.”

So while casual work might offer the flexibility to balance other commitments alongside earning income, it lacks reliability. Hence, Gen Y are forced to move about to find a casual job that can offer them more work. But even staying in one casual position is not guaranteed to please lenders as this form of work lacks the regular pattern of employment needed to build a record of steady income necessary to securing a home loan. In fact, Beer and Faulkner of Australian Housing and Urban Research Institute (AHURI) noted the incompatibility between this form of “insecure and short-term employment and the long-term financial commitment” required from lenders in their 2009 report.

When asked if buying a house based on her job history seems likely, Ms McLoughlin has no doubts.

“Definitely not. At this point in my life it feels so out of reach. It’s not an achievable goal.”

Cost of deposits and dual income

Even securing full-time work does not make saving for a house deposit easy with data from the Melbourne Institute showing house prices have continued to rise faster than income since 2013.

“The cost of housing compared to wages…the gap is huge now,” Mr U’Ren says.

Burke, Stone and Ralston of AHURI suggest one way of getting around the enormous expense of a home today is to form a dual income household which, by 2011, had become a necessity for most Australians. This is exactly what Jordan Williams, 21, has done. The full-time building designer and her boyfriend, who also works full-time in steel manufacturing, will soon be moving into a brand-new home they have purchased in Carrum Downs.

But finding a long-term partner is easier said than done.

Making repayments

For those like Williams who have formed a dual income household to buy a home, the money woes do not stop there. Due to the aforementioned gap between wages and house prices, the repayment process is still terrifying.

“I knew I needed a full-time job to afford a deposit and the repayments,” Ms Williams says. “The mortgage brokers evaluate everything before giving you a home loan. They look at your income and put specific amounts away for spending money and everyday purchases, and then you can see how much you’d be able to pay back…But I’m always worried we’re not going to be able to make enough money to pay it back.”

It seems Ms Williams’ fear is not irrational; one AHURI report predicted the total number of households in housing stress – defined as housing cost to income ratios of at least 30 per cent – will increase by 77 per cent (or 18,500 households per year) by 2045.

The solution

If Gen Y ever want to shake their existing nickname and become Generation Buy, there are a few steps that can be taken when it comes to employment.

In a perhaps idealistic stance, Mr Bouris suggests that mortgage lenders will have to think about meeting Gen Y “halfway” and become more flexible with their lending criteria.

Alternatively, reform to casual work could see Gen Y reap the benefits from this form of employment without experiencing the pitfalls. Though Wood and Ong of AHURI claim the government fear of “capital flight” and “investment strikes” is believed to have motivated moves to deregulate employment conditions, measures are currently being put in place to improve casual work for employees. A recent Australian Council of Trade Unions victory in the Fair Work Commission saw a new clause added to 85 awards that gives casual workers the option to convert to permanent part-time or full- time status if they have worked a pattern of hours on an ongoing basis for 12 months that is compatible with permanent work.

While increased housing affordability would eliminate the need for Gen Y to form dual income households and alleviate the stress of repayments, this will chiefly rely on long-term policy changes like reforms to negative gearing and the cut to the capital gains tax. In the meantime, young Australians who do not have a partner to purchase with can take Mrs U’Ren’s advice.

“I think today if you had a groups or brothers and sisters, you could buy together.”