AUSTRALIA: An Australian man looking to enter the property market said Gen Z and those younger are “well and truly done for” when it comes to affording a home, as even with several optimistic assumptions — no study loan repayments, no limits on borrowing power, and no deposit — the future of homeownership, especially in a city like Melbourne, still looks pretty bleak.
Sharing on r/AusPropertyChat, he cited an example: A teacher who just started working full-time after graduating last year would have a starting salary of AU$79,859 (S$71,322), or about AU$2,441.50 in take-home pay per fortnight, according to paycalculator.com.au, assuming he has no study loan repayments.
Generally, financial advisors do not recommend spending more than half of one’s income on housing, assuming budgeting that 50% for housing would still be difficult.
Based on that salary, a first-time teacher would have only around AU$1,220 per fortnight to put towards mortgage repayments.
However, with homes in Melbourne priced at around AU$300,000 for an apartment or AU$500,000 for a house, even a best-case scenario — a 6% loan and no required deposit — already stretches what the teacher can afford.
If the teacher chooses to live with his parents and put aside AU$1,220 per fortnight into a savings account earning 6% interest instead of buying a home, the net worth would be about AU$33,947 after a year.
Meanwhile, using the average year-on-year (YoY) percentage change in Melbourne’s median property prices from 2000 to 2016, the teacher’s net worth after one year would be about AU$24,773 if they choose to buy an apartment, assuming a 3.55% annual increase. This includes AU$14,123 from paying down the principal and AU$10,650 from the increase in the apartment’s value.
However, if a teacher chooses to buy a house, assuming an 8.54% annual increase, the net worth would be about AU$44,449, with AU$1,749 from paying down the principal and the remaining AU$42,700 coming from the increase in the house’s value.
What’s surprising, he said, was how being a “perfect saver” instead of buying the AU$500,000 house could leave the teacher further from owning a home.
Advising younger workers, he said, “buy a house,” warning that not doing so means “falling further away from owning one every year that you wait.”
“God help those who are still at university, who haven’t been able to save up a deposit yet, or those still at school,” he added.
Commenters were mixed on his “buy a house” advice.
A younger Millennial who just bought his two-bed and two-bath unit, which required a 20% deposit, said, “My repayments will be about 60-70% of my base salary after tax. Luckily, I earn allowances on top which gives me an extra 2k approx a month. But if I have to live off my base it’s going to be a big struggle.”
However, others were not convinced, with one saying it could be possible with a dual-income household but not on one. “Unless you’re a very high income,” the commenter added.
A third added, it could be “a little easier” for the outer suburbs.
In related news, research commissioned by the Regional Australia Institute found that nearly half of Gen Z are considering moving to Australia’s regional areas due to lower living costs and cheaper housing, as well as how it is closer to nature. Nearly the same share of Millennials are also planning to do the same. /TISG
Read also: It may take American Gen Zs quite long to buy a home of their own amid mounting debt
