An average Australian millennial’s list of woes keeps getting longer and the latest addition is them feeling like they are forever locked out of the housing market. Despite earning higher incomes than the boomers did, they are accruing less wealth thanks to the rapidly changing economic landscape that is a disastrous melange of the rising cost of living, absence of financial security of major assets and financial stress in general. And because of this, owning a house seems like a distant dream. Paying exorbitant rentals for small rooms in share-houses is exacerbating the situation and the millennials are not amused, to say the least.
Why are millennials at the receiving end of this bad bargain?
No, it is not because they are always on their phones like the older generations constantly point out, nor is it because they spend on consuming avocado toast (the meme that stereotyped an entire generation) without saving to buy a home. It is high time that everyone acknowledged that the components which underpin the housing unaffordability are structural and much more serious than we ever imagined. It is mainly millennials who are denied access to the housing market because of the older generations receiving advantages from housing policies that were created to encourage more people to own homes.
A complaint that many lodge against millennials is that despite earning good numbers, they do not have a proper plan for saving. And that they are being irresponsible. Of course, their incomes are certainly higher, as mentioned by Dan Latu in the article “Meet the typical Australian millennial: They are delaying marriage and kids, have $16,000 in student debt, and their housing woes sparked political change”. The article uses data from the Australian Census Bureau, where according to its statistics, millennials today, on average, earn a weekly wage of AU$ 1527, which is equivalent to an annual income of approximately $57,304 in the United States.
When comparing this to previous generations, at the same age, Generation X’ers were earning AU$930 per week, while baby boomers were earning AU$520 per week. However, the income has not kept pace with soaring property prices.
Saving for a downpayment on an average-priced home in Sydney requires 260% of an average yearly wage, compared to 110% in 1990. The tax systems don’t make it any easier either. It favours older property owners rather than lending a helping hand to the younger generations to penetrate the market. And this is not a recent event. Rather, it is an occurrence that has a history.
Since the year 2000, when the oldest millennials reached the age of 20, they have needed an income that is 11 times the average salary to cover the entire cost of a 30-year mortgage and 122% of their annual income to afford the initial deposit for a home. In comparison, Generation X, at the same age, also required an income that was 11 times the average salary for a mortgage but only needed 94% of their annual income for the initial deposit. This highlights the significant financial challenges millennials face in purchasing homes compared to the previous generation. And because some cities are not going easy on them, many are moving out in search of better options.
A mass exodus?
Stephen Johnson, writing for the Daily Mail captures the gravity of the situation in his article “The Australian postcodes millennials are fleeing to for cheaper housing- as a new wave of migrants moves into the suburbs they left ”. He says that millennials are running away from suburban areas without looking back because of the skyrocketing housing prices. They are instead relocating to regions in Australia where real estate is more affordable.
Specifically in Sydney, young people are departing from suburbs that are seeing an influx of overseas migrants. Johnson mentions that according to the e61 institute, an economic research organisation, this trend of millennials leaving is particularly notable in the eastern suburbs and Parramatta.
Sydney in particular records an incredibly high median house price of $1,344 million. To afford a $1 million loan with a 20% mortgage deposit, even an average full-time worker earning $940,000 a year would struggle. In certain upscale areas like Bondi and Vaucluse in the eastern suburbs, house prices soared to well over $4 million and even $8 million, according to CoreLogic data. This makes even the thought of considering homeownership an unaffordable luxury, not only for single occupants but for dual-income couples with combined annual incomes exceeding $200,000.
To comfortably afford a $2.84 million house and avoid mortgage stress (where you owe the bank six times or more of your income), an elite professional would need to earn around $377,553, which is in the top one per cent of income earners.
Many people leaving Sydney are choosing more affordable coastal regions nearby, such as Wollongong, Newcastle, and the Gold Coast, or even relocating to places like south-east Queensland and Canberra. Melbourne, on the other hand, is not as popular among those leaving Sydney.
While Sydney has seen significant overseas immigration, it has also experienced a consistent annual population outflow of 0.5% over the past two decades, primarily to other parts of Australia. The e61 Institute found that for every percentage point increase in housing prices over five years, an additional 0.2% of the population tends to leave in the following five years.
Most of the comparisons that are brought to the table between the generations to highlight the difficulties that millennials are facing are not to start beef between generations, but it is to show that this generation cannot live the life they want, even if they give it their best shot. A common sentiment that most Australians share is that land is wealth. A belief as such ensues the idea that homeownership acts as a milestone in many Australians’ lives. Being unable to reach that status puts most millennials under undue stress. In the same vein, millennials who hope to become homeowners often face challenges that can have long-term consequences for their plans. Some may end up retiring in rental properties, while others, if they manage to buy a home later in their careers, could still be burdened with mortgage payments well into their retirement years.
Say that after fighting tooth and nail they do manage to get enough funds to afford a house. Even then they will not get breathing space because the second part of Australia’s housing crisis is that there aren’t enough for everyone to buy. Which is why owning a home remains to be a pipe dream for most millennials.
(Sandunlekha Ekanayake)