A Crisis of Misinformation: Generation Y’s Property Conundrum.

I’ve gone on record in the past about how the median house price is unaffordable for the median income earner in Australia. In the same breath I also explained how rare that this kind of situation was due to the number of assumptions made when you just equate median income with median house price. Still it seems to be a sticking point for many people of my generation that housing prices are just too damn high for them to be able to afford something, even if their incomes are above the median. While I’ll admit that it is harder in some areas rather than others (like Canberra for instance, which I explain below) the generalization the property is straight up unaffordable for our generation just simply doesn’t hold water and the reasons are far more likely to be ones of desire than affordability.

The Canberra Times ran an article yesterday that showed Canberra’s cheapest house prices were $100,000 more than the cheapest places in other capital cities. The cheapest suburb Charnwood (where I just so happen to live) had a median price of $382,000. In comparison to the other 2 suburbs listed in the article this seems kind of ludicrous but there are some pretty good reasons for this discrepancy. Firstly the suburbs that Canberra was compared to aren’t exactly identical with Charnwood being only 20 minutes to the CBD of Canberra and the other suburbs being around double or triple that distance. In that respect it’s more apt to compare property in Queanbeyan and the surrounding region which has several areas with a substantially lower median. There’s also the fact that Canberra is disproportionately affluent thanks to the high concentration of public service jobs and low population which skews the median further. That doesn’t change the fact that property in Canberra is more expensive than it would be elsewhere but it does show that straight up comparisons like the one in the Canberra Times aren’t exactly apples to apples.

Whilst the zeitgeist around the property market for my generation might be “it’s too expensive” a recent survey showed that a large majority of my generation are considering buying property within two years. Unfortunately only 30% think of it as a good investment (although what investment vehicles they consider good doesn’t seem to be included) which makes me then wonder why so many are intending to buy. The biggest challenge according to the survey is saving the required deposit for the house, not financing the loan as you’d expect. The article then references the high median price in Sydney as a source of this barrier which, in my mind, isn’t a barrier at all.

The first folly here is to assume that a first time home buyer should be buying at the median. For starters a good 50% of the housing market will be below that price range, especially if you consider some of those cheap suburbs that the Canberra Times article alluded to. This reduces the “required” (more on that in a sec) deposit from $110,000 to something more like $60,000~75,000 still an non-insignificant amount but a lot less than what the article insinuates. There’s also the assumption here that you need to get a 20% before considering buying which I can tell you is misnomer.

For starters the 20% threshold is usually just to avoid paying Lender’s Mortgage Insurance (LMI). Now this isn’t insurance for you, it’s for the bank in case you default on the loan. What a lot of people seem to think is that this is either some astronomical one off cost or a recurring charge that’s tacked onto the loan. For both of the home loans we currently have we had little more than a 5% deposit and the LMI charge was a couple thousand dollars, much less than the amount of cash required to get the 20% deposit. Of course your choice of loans might shrink a little as well but we never struggled in finding a suitable loan at a decent rate, even when we had such a small deposit. Put this all together and cracking into the property market doesn’t seem as bad for my Generation Y cohorts but you wouldn’t read that in the papers.

Realistically it all comes down to a lack of information and understanding which is unfortunately fuelled by articles like the ones I’ve linked to. Whilst I know that many won’t do the research and then continue to lament their position I’m hoping that at least a few will see articles like mine and start doing some investigation for themselves. Knowledge, as they say, is power and the Australian property market is no exception to this.

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  1. I struggle to comprehend that people think property is a poor investment. When in sections of if you have a 5% deposit and put lease it out at market rates you would at most be required to pay $20 to pay off the loan while your property happily increases in value over time. Have 10% deposit and you would not even have to chip in to pay the loan but actually be collecting on the land.

  2. It’s got to be a lack of financial education as the many people I’ve talked to about investing haven’t had the slightest clue what constitutes a “good” investment. Property is usually the default for most people who have half a clue (at least in Australia, property ain’t so good in say the USA right now) but beyond their ability to analyze investment decisions is rather limited.

    It really shouldn’t be a surprise when the idea of creating a budget is a foreign concept for most people, but its depressing none the less.

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