Generation Rent is growing in numbers
Published: June 30, 2012 – 3:00AM
I’m sure I don’t need to tell you how exciting I find the five-yearly release of census data. I presume – but cannot be sure – it stirs in me the same emotion most people feel about the Olympics. You like sitting on your couch every four years watching strangers twirl, hurl and throw things. I like Microsoft Excel. Let’s just agree to disagree.
The first results from last year’s census have already revealed several astonishing things. For instance, for the first time in its history, Australia is now home to a greater number of people expressing ”no religion” than Anglicans. The proportion of people ticking the ”no religion” box jumped from 18.7 per cent in the 2006 census to 22.3 per cent, leapfrogging Anglicans (17.1 per cent) into second place for religious affiliation. Catholics retain their religious hegemony at 25.3 per cent of the population.
But perhaps the most astonishing figure to come out of the latest census results was a near 50 per cent jump in rents since the 2006 census.
Between 2006 and last year, the median weekly household rent jumped 49 per cent from $191 to $285. That’s an annual rate of 8 per cent-plus a year across the entire country, far outstripping annual growth in median household incomes of about 3.5 per cent.
The big story of the previous census was a steep rise in median monthly mortgage repayments – 50 per cent between 2001 and 2006. This time it is rents.
It is fair to say most of the reporting on financial matters in Australia concentrates on the needs of the one-third of households who own their homes with a mortgage. Unlike borrowers in other countries where fixed interest loans are common, Australians by and large are on variable interest loans, meaning we are particularly sensitive to interest rate moves.
If that gets old, or when interest rates are going down, reports occasionally focus on the plight of pensioners and retirees with large sums saved in interest-bearing deposits. The mortgage holder’s gain is grandma’s pain, and vice-versa.
But for a growing proportion of younger and lower-income people, movements in rents are just as important. Overall, the proportion of those renting has increased from 26.3 per cent in 2001 to 29.6 per cent in 2006. Lower income households have always been more likely to rent, unable to afford a home.
More recently, younger people have also been spending longer in rental homes. For some, it’s a temporary thing as they take longer to save a deposit on a home. For others, there has been a mindshift about the benefits of home purchase versus renting.
Time-poor executives needing to live in the inner city to be close to work find themselves renting for longer than their forbears. Generation Rent also enjoys the flexibility to move more freely to take advantage of new job opportunities.
From an economy-wide perspective, lower property purchase helps to create a more mobile workforce (particularly when state governments have loaded property purchase up with massive stamp duties on moving).
From a personal finance point of view, the decision to rent can make sense. While rent money is ”dead money”, so too is interest paid to mortgage lenders. If rent paid on a property is lower than the interest payments that would be needed to afford the same or similar property, renters who invest their leftover cash in shares or in the bank could come out ahead, particularly now that property prices have stagnated. Of course, the tax deductions on owning property skew the equation.
But with more people deciding to rent, this is putting pressure on the supply of rental homes and on rents, making life particularly hard for those on lower incomes. It remains to be seen if Generation Rent is just holding off on home purchase or preparing for a lifetime of renting. Rent rises and property price stagnation will influence their decisions.
This story was found at: http://www.smh.com.au/opinion/politics/generation-rent-is-growing-in-numbers-20120629-217wr.html