Rising youth unemployment numbers, the mounting cost of property in Australia and low levels of wage growth have created challenges for those wanting to enter the market.
According to LJ Hooker's Network Chief, Graeme Hyde, young property hunters in today's market have changed their buying habits to overcome issues faced in our evolving property markets, adapting the way they buy, use and invest in property to suit the way they want to live or to suit their budget and investment strategy.
"It seems to be the case that while policy makers and industry groups have been consulting on the best approach to help, the younger generation has been working behind the scenes to find innovative new ways of ensuring that they can secure their piece of the Australian dream," he said.
"There are no doubt challenges faced by first home buyers, however many savvy Gen-Y'ers see investing in property as a long term venture, not just somewhere to live."
In fact, the latest consumer research from realestate.com.au shows that 23 per cent of those under 30 searching for property were investors and so will go that extra mile to secure a property.
According to LJ Hooker Research Manager, Mathew Tiller there have been a number of factors that have influenced property hunters under the age of 30 to explore non-traditional ways of buying property, including; affordability, lifestyle choices, location and income and employment.
"The biggest driver changing buying habits of those under 30 has been the rising cost of property. The national average loan size for a first time buyer was $326,000 as of March 2015; a growth of 14 per cent over the past 5 years and 58 per cent since 2005. Price growth has also dramatically slowed the time it takes to save up for a deposit," Mr Tiller said.
"Also, rising levels of youth unemployment and low levels of wage growth since 2009 have not matched recent strong property price growth seen in capital cities. This has inhibited even those with secure employment from wanting to purchase their first property due to job security concerns and an inability to save for a deposit as fast as property prices have risen."
These various economic, social and demographic shifts have resulted in a number of non-traditional buying trends emerging for those under 30. Those trends are:
- rentvester
The most common new buying habit, first identified in LJ Hooker's The (new) Australian Dream white paper, is that of the rentvester. This buyer is currently renting, loves their lifestyle and doesn't want to relocate from the area where they are presently living. The problem is that they can't afford to buy in this area. Rather than disrupt their current lifestyle these buyers purchase a property in a more affordable part of the city or country, and rent that property out while they remain as tenants in their current location.
- Team up
Younger buyers have looked to overcome the affordability challenge by splitting and sharing the cost involved in purchasing a property. They have done this by teaming up with a family member, friend or business partner in order to buy a larger property to co-inhabit or as an investment. The major decision here is how to structure the ownership arrangement.
- Mr & Mrs fix it
Young families have looked to get into a larger house in their preferred area by purchasing an older smaller home which usually sits at the bottom of the price scale for the area. Generally, these properties are in need of major renovation; however, they allow buyers to add rooms and levels as their families grow.
- Build 'em up
Another more affordable way for young families to get into a new house is for young buyers to move out of their local area and into a newly built suburb. This has seen demand for house and land packages in new estates rise considerably over the past few years. For those not willing to compromise on location, purchasing a vacant lot and building from the ground up has also been away to remain within their preferred area.
- Buy now pay later: Purchasing off the plan for extended settlement
Capital city markets have seen strong growth in the number of new developments being approved; this rise has been in line with an increased popularity of apartment living. Purchasing "off the plan" allows a buyer to put down a deposit now and not have to deal with the mortgage repayments until construction is complete. This has been popular with the under 30s as it allows them to keep saving or maintain their lifestyle in the short term until they move into their new property. This has also been popular for the younger generation of investors who want to lock in today's price and capture the capital growth over the construction period.
- Thanks Mum & Dad: Using parents' equity
Parents have ridden the property cycle over the past few decades providing many with a hefty equity uplift or outright ownership of their homes. This has in turn allowed them to use their financial position to go guarantor on their children's mortgage or stump up some cash to help out with the deposit. Recent research by the NAB shows that first home buyers are increasingly turning to their parents for help in order to get into the property market. They found that 6.7 per cent of first home buyers now use the NAB Family Guarantee; up from 4.8 per cent in 2010. While some have called these buyers KIPPERS (Kids In Parents' Pockets Eroding Retirement Savings) for the majority of first home buyers this is the quickest, most secure and best long-term financial solution to get a foot on the property ladder.
