The Australian dream of owning a home is beyond many young people. Is it time to give up and eat $22 smashed avocado toast instead?
“Rent money is dead money. You may as well set your money alight,” my grandfather says. According to experts, that’s parents, grandparents and other baby boomers: renting is one of the most popular ways to throw away thousands of dollars of your hard-earned money.
But for a young person, so is taking out a mortgage.
I’ve had pizza and chips every Saturday night for the last five years, and most of the time it’s been from the same place; my local Lang Lang fish and chip shop (pop in and say g’day to pizza chef Brutus the next time you head that way).
So let’s say I took out a 30-year mortgage for $300,000 at the same time I began eating fish and chips on a Saturday night. My weekly repayments would be around $310 and over the life of the loan, I would cough up around $190,000 in interest.*
On the other hand, I can spend around $100 a week and not have the worry about a mortgage, by living with other people. Shared rental can cost between $85 and $215 a week, according to the Australian Government’s Study in Australia website.
I’d save around $190 a week renting with my best friends. Today, I would’ve saved just over $50,000.
Rent it out
Here’s a hypothetical situation. I have a plan. I’ll keep saving for a deposit and in five years I’ll be 24-years-old. I head to the bank.
But they knock me back.
Okay. I’ll repeat the process and keep saving hard for the next five years. I’m 29-years-old. They can’t refuse me now.
So if a bank that has profits soaring into the billions of dollars thinks I’m too risky to give a loan to – why not put the risk on my parents?
At 30, I ask mum and dad to be my guarantors – using their assets to take out a deposit for a mortgage for me. I move out of home and rent elsewhere while renting out the house I bought.
I receive money for rent, but that doesn’t cover the mortgage repayments. Bills flood my inbox; rates, repairs, and other general maintenance. Interest rates rise and mortgage repayments go up. I can’t keep up with the bills. My tenants move out because the place is falling apart. I move in. I can’t have a shower because I forgot to pay the water bill. I lose my job because I smell. My house is repossessed by the bank and at the age of 35, I have no money and no assets.
Hypothetical yes, but I cannot stress enough that we don’t know what the future holds. Living in my own home would be great. But I need money to maintain it.
Impossible Australian dream
Renting for 30 years, sure I admit, I’d be stuck in a ditch. But as a young person, we need affordable housing. And there’s a lack of affordable homes for sale in the same place where there are plenty of jobs. In regional Victoria, the median house price is around $347,000, but in Melbourne it’s more than double, averaging $725,000, according to data from the Real Estate Institute of Victoria.
As for the Australian dream of owning a home, it’s no longer in reach. As newspapers have attempted to survive 2016 and politicians have tried to engage with today’s youth by getting on Snapchat, we know times change, and for publications or MPs that fail to change – they fail.
The Australian dream is gone. It’s been eroded like the shore at my local beach.
What capital gains?
For most homeowners, the value of their home will rise and when they sell, profits will more than cover the amount paid to the bank for the mortgage, including interest. So to be clear, I’m not saying young people should never buy a home, but there is a strong case for holding off until young people are in a good financial position to take out a mortgage.
Although a Roy Morgan study found around 311,000 Australians owe mortgages that are the same, or more, than their home is worth, I can’t imagine the pain in forking out hundreds of thousands of dollars to a bank, and not receiving anything more than a thank you note back. In fact, do we even get that?
The Australian dream is no longer achievable for young people. So let’s enjoy some $22 smashed avocado on toast for breakfast, right Bernard Salt?
— Christine Middap (@ChristineMiddap) October 18, 2016
Skipped smashed avocado for breakfast this morning. Excited to buy a house next week.
— Tony Broderick 🙃 (@brod) October 16, 2016
– Matthew Male
Photo of Matthew holding avocados by Geir O’Rourke and cartoon by Kaitlyn Wilson.
*According to calculations by Your Mortgage’s home loan repayment calculator. This was determined with an interest rate of 3.57 per cent per year, the lowest comparison rate currently offered, according to financial comparison website RateCity. Calculations assume the interest rate on the mortgage doesn’t change and mortgage holder has weekly repayments of $313.39.