Millennials and the Housing Market - Renting vs Homeownership

November 23, 2018

 

It is no secret that Meridian has been pessimistic on the Sydney Property market since 2015. Our concerns have been proven accurate in the past 12 months (8% loss), as the Sydney property price continues to correct towards 2015 levels, potentially eroding any capital gain experienced in 2015,16 and 17 (17% growth). However, while the Sydney property market likely continues to correct over the next 3-5 years, Meridian has begun our due diligence in preparation to re-enter the market in coming years. Buying in Sydney now, is still premature, therefore our first point of research relates to long-term effects of household formations and how this will impact the type of dwellings in highest demand for the future demographic.

According to recent data released by the ABS[1], there is a higher representation of people aged 20 to 44 years residing in capital cities. Closer analysis of the data shows that people in this age group represented 38% of the combined capital city population, compared with 30% of the population in the rest of Australia.

 

 

Source: ABS

 

This would suggest that younger adults are choosing to live in closer proximity to education, employment and other opportunities that are capital cities have to offer.

 

The above observation aligns with a recent study completed by leading research and advisory, BIS Oxford economics.

 

In a report entitled “The Emerging Trends in Residential Market Demand”, Senior analyst Angie Zigomanis examined 25 years with of ABS census data surrounding household compositional trends for this demographic.

 

The report found that there has been rapid population growth amongst the 20-34-year-old age bracket; driven by a combination of natural increase, as well as high levels of overseas migration inflows.

 

While the investor demand has driven the boom in apartment sales on the eastern seaboard and satiating the growing tenancy needs for the young 20 somethings, the report suggests that small one- and two-bedroom apartments will be “inadequate for their needs as owner occupiers with emerging family”.

 

Household Ownership

 

According to the latest Household, Income and Labour Dynamics in Australia Survey (HILDA), renters are becoming a rapidly growing demographic in Australia.

All age groups other than the 15 to 24 age group have experienced a rise in renting, but the increases have been largest for the 25 to 34 and 35 to 44 age groups.

 

 

Source: HILDA Survey, 2018

 

Whilst the growth in these numbers may largely be attributed to rising house prices (particularly in Sydney and Melbourne), census data tells us that younger Millennials are choosing to remain in the parental household for longer.

 

Reasons for this may be attributable to the fact that this demographic are making lifestyle choices to undertake further study or travel prior to entering the rental or homeownership markets.

 

In addition to this, the transition from renting to purchasing a home is taking longer than years gone by as greater time is required in order to save for a housing deposit.

Irrespective of the above, the transition into either market cannot be put off indefinitely.

 

The boom in apartment construction over the past decade has been key in accommodating the Millennial population as young renters and first-time homebuyers, but the housing market will need to change again over the next decade to be able to accommodate Millennials in their next stage of life.

 

 

A Change in Dwelling Requirements

 

As the Millennial population continues to age over the next decade and enter the household formation stage of life, it is anticipated that this will drive a shift in demand for larger dwellings to accommodate growing families.

 

This view is echoed by BIS Oxford Economics- Senior Analyst, Angie Zigomanis:

 

“To meet the potential growing number of Generation Y families in established areas, multi-unit dwellings will need to be designed to be more appropriate to family life, offering more space, both indoor and some outdoor, or located adjacent to public outdoor spaces,"

 Source: The QBE Housing Outlook 2018-21

 

Despite affordability constraints, low interest rates and Government incentives such as stamp duty concessions and first home buyer grants have supported strong activity from the First Home Buyer segment of the market in the 12 months to June 2018.

 

 Source: The QBE Housing Outlook 2018-21

 

This would suggest that despite the impact of house price growth on affordability, this has not deterred Millennials from realising the “Great Australian Dream” of property ownership.

 

To this end, anecdotal evidence would indicate that Millennials are choosing to rent in inner ring suburbs located close to transport, amenity and employment before transitioning into homeownership.

 

Looking forward, it is anticipated an ageing Millennial Population entering the stages of household formation will drive a shift in demand towards larger unit and townhouse dwellings.

 

As Millennials seek to transition from renting to home ownership, areas located in middle and outer suburbs with access to public transport and amenity will provide cheaper entry points into the market and support new household formation.

With Sydney and Melbourne housing markets showing strong signs of cooling, a window of opportunity appears to be opening for Millennials seeking to get a foot on the ladder in the home-owner market.

 

 

For further reading, please click on the articles below:

 

https://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0005/2839919/2018-HILDA-SR-for-web.pdf

 

https://www.abc.net.au/news/2017-07-17/home-ownership-graph/8696962

 

https://www.smh.com.au/money/borrowing/the-most-affordable-suburbs-for-first-home-buyers-20180614-p4zlde.html

 

_______________________________________________________________________________________

 

[1] ABS Cat Series 3235.0

Please reload

Featured Posts

The Dangerous Seduction of Investing In A Holiday Destination

September 15, 2017

1/4
Please reload

Recent Posts

September 20, 2018

Please reload

Archive
Please reload

Search By Tags
Please reload