According to a recent Grattan Institute report, home ownership rates have fallen in recent years for all Australians, but particularly for younger people and people in a lower income bracket.
‘It’s been a perfect storm of rising incomes and falling interest rates, rapid migration, tax and welfare settings feeding demand, and planning rules restricting supply. As a result, house prices have more than doubled in real terms over the past 20 years,’ writes John Daley and Brendan Coates from the Grattan Institute.
Construction has been boosted to assist housing affordability. Government incentives, such as the First Home Super Saver Scheme, have been introduced. But still, some argue there is more to be done at a government level.
‘Ultimately, much more remains to be done on the policy front to achieve meaningful improvements in housing affordability for millennials,’ says Rachel Ong Viforj, Professor of Economics at Curtin University.
While we wait for economic and policy changes to make first home ownership a reality for more younger Australians, we can take matters into our own hands, and think outside the square about how to break into the market.
A number of new home owners are getting their foot on the property ladder by ‘rentvesting’. The term ‘rentvesting’ refers to renting in the area you want to live in (or maybe staying at home with parents) and buying investment property in more affordable areas.
‘You don’t have to give up on, or defer, your goal of home ownership – a rentvesting strategy can allow you to break into the property market sooner and build future wealth,’ says money expert, Bessie Hassan.
When you are doing the sums, make sure you calculate all rental costs, such as bond and moving costs, as well as maintenance costs, strata and council tax associated with investing.
Buying with family
Parents and older generations have long helped younger generations enter the property market, either by buying property for their offspring, or in recent times, acting as a guarantor for the loan. A family guarantor is a family member, usually mum or dad, who offer equity as security for the buyer’s loan.
Families sometimes also pool resources to purchase a property.
You will need to consider how the title will be structured. A joint tenant structure is one way of organising the title. This means if one co-owner passes away, the other owners will inherit their share.
If you’re going in together, parties need a clear written agreement, and ideally independent legal and financial advice is sought for everyone involved, so matters are above board.
Pocket Money Savings Plan
Another option for entering the housing market, of course, is to save up the deposit yourself. With house prices as they are, a radical savings plan is needed.
Author Emily Power recently shared her Pocket Monet Savings Plan, which is a very strict, and radical solution for saving up your deposit. Power recommends asking a trusted relative to receive your income in their bank account, and get them to give you access to a very limited weekly spending budget. Power has moved from stifling debt to a significant amount in savings over a couple of years, so she is now in a position to imagine purchasing her first home.
If you’re in the market for a new home, book a chat with your Smartline Adviser to work out how you can break into the market.