Renting or buying your first home when raising a family?
Updated: May 6
Increasingly, Gen X and Gen Y, or millennials, are raising young families in rental properties, rather than homes which they own. The question of housing affordability for our young people is nothing new, but now these young people are growing up, settling down, and having children of their own.
The latest Household, Income and Labour Dynamics in Australia (HILDA) Survey from the Melbourne Institute at the University of Melbourne found that though this is traditionally the stage of life where young people look at buying their own ‘family home’, things are changing.
In 2008 almost 21 per cent of couples with dependent children were renting. Since 2011 that proportion has risen and stayed at around 27 per cent, and the trend looks like continuing into the future.
Though housing affordability is certainly a factor, it seems millennials especially are increasingly wary when it comes to the risks involved in home ownership. Though interest rates are currently low, millennials who came of age in the shadow of the global financial crisis are aware that committing to a large mortgage is a potentially risky move, especially if they do not feel secure in their employment, or are otherwise unsure of their financial future.
Another study, the Life Patterns project, carried out by researchers at the University of Melbourne found that housing affordability may be important, but not necessarily for the reasons you would expect. It seems millennials are not only prioritising proximity to services, schools and employment opportunities when deciding on a place to settle down, they also want to be close to their families, and the familiar neighbourhoods where they themselves were raised.
Though millennials will typically migrate towards larger city centres when studying or starting their first jobs after graduation, the plan for many is to return to neighbourhoods where they can rely upon the support of family members as they raise their own children.
It’s not necessarily that millennials cannot afford to buy, but that they cannot afford to buy where they would like to live, and are afraid of the pressures of a large mortgage if they do.
The HILDA data suggests that when millennials do decide to buy they will often invest in an area they can afford, and continue to rent in the area where they wish to live. In this way, many in the younger generations are stepping onto the first rung of the property ladder, buying investment properties rather than first homes.
The problem with renting when raising a young family is that renting in Australia is not particularly stable.
A 2017 report produced by CHOICE, National Shelter and the National Association of Tenant Organisations (NATO) compared renting agreements in Australia with those in Europe, finding a stark difference. Though leases in countries such as Germany, Denmark and Ireland are often indefinite, in Australia they can be as short as just six months.
Very few Australian renters have a fixed-term lease that runs for two years (6%) or longer (5%).
The same report found that couples with children comprise 24% of the rental market, with another 11% being single parents. This puts into perspective the common view of renters being young, single students. Only 11% of renters are sharing a house with flatmates or friends.
Rental laws are changing to give greater security, with reforms to the Residential Tenancies Act recently passing through the Victorian parliament.
The new laws require landlords to notify tenants of their plans for the rented property, including future plans to sell, and landlords will also be required to give a reason for termination of tenancy agreements.
Currently, landlords may increase rent every six months, however, the new laws will double this to a twelve-month period.
It is hoped these adjustments will provide more stability to tenants, though they are only scheduled to take effect by July 2020.
Whether you are saving for your first home or investment property, or happily renting and enjoying the freedom, the team at Life Solutions Financial Advisers specialise in helping people get on the right path to a solid financial future. We can provide advice and assistance in the areas of wealth creation, risk insurance and asset protection, goal identification and setting as well as education savings plans.