Forget the ‘Australian dream’ – what Gen Zs face in the current renting and real estate market is more like the Australian nightmare.
Never has owning a home been so off the cards.
In fact, the International Monetary Fund (IMF) ranks Aussie properties as some of the most expensive in the world, due to soaring prices, demand from investors, and a chronic shortage of supply.
But it’s not just home ownership that’s ‘fucked’ – as Vice so eloquently put it.
The rental market has also descended into ‘catastrophe’, with Anglicare’s most recent Rental Affordability Snapshot reporting only 2% of rental properties in Australia are ‘affordable’ in accordance with minimum wage.
Two. Per. Cent.
Now, this puts Gen Zs in quite the existential pickle. Should they buy a home or rent and invest instead? Which is right, and which is a big financial mistake? Well, it depends on who you ask.
The argument for buying for a home
‘Self-made millionaire’ and best-selling author David Bach told CNBC not buying a home is “the single biggest mistake millennials are making,” (and we can assume he’s referring to Gen Zs, too).
Bach, who’s from the USA, says not buying a home is a ‘costly mistake’ for young people and ruins their chances of accumulating any wealth over their lifetimes.
In ‘The Automatic Millionaire: A Powerful One-step Plan to Live and Finish Rich’ Bach wrote, “As a renter, you can easily spend half a million (US) dollars or more on rent over the years ($1,500 a month for 30 years comes to $540,000), and in the end wind up just where you started — owning nothing.”
Alternatively, he says, “you can buy a house and spend the same amount paying down a mortgage, and in the end wind up owning your own home free and clear!”
His advice to homeowner hopefuls?
Crunch the numbers. Do the maths. And remember that buying your first home might not be buying your dream home.
“Look and see what things cost, starting with the smallest options. This way, you’re really clear on your goals and you won’t just say to yourself, ‘I’ll never afford this.’”
Sounds logical enough. But what does the other side say?
The argument for renting and investing
Peter Mallouk, president of wealth management firm Creative Planning vehemently disagrees.
He says buying a home is, in reality, “a terrible investment” and it’s usually young homeowners – like Millennials and Gen Zs – who find out the hard way.
In fact, a whopping 63% of Millennials who bought homes in the USA admitted to suffering from buyer’s remorse – because they underestimated the hidden costs involved in buying a home.
So what tends to be forgotten?
“You’re paying property taxes, you’re paying maintenance, you’re paying insurance. There are all of these other things that happen with your home that you’ve got to pay for,” he said.
However, Mallouk admits that one of the benefits of homeownership is that the monthly mortgage payments can act like a kind of ‘forced savings’, which can be constructive in terms of developing personal assets.
After all, “you’ve got to find the money every month to put into your home to pay that mortgage, so it forces you to build equity,” – even when taking lending interest into account.
But he reminds us that arguments can go both ways.
Being disciplined about putting aside any savings you make from renting as opposed to paying a mortgage, interest and the associated ‘hidden costs’ could still put you “in far better shape than if you had invested that in a property that continues to take money from you,” he said.
And with less young Aussies having access to the bank of mum and dad and more turning to crypto investment to generate wealth, could the latter be the more feasible option for Gen Zs?