Gen Y, rentvesting and the affordability crisis

Gen Y, rentvesting and the affordability crisis

While debate about the overall economic outlook for the coming year rages, one thing seems crystal clear – the affordability crisis is a real one and it won’t be going away anytime soon. Though investors at the top end of residential markets are locking in record returns across the country, more and more first-timers are finding property an increasingly tough nut to crack.

Some of the figures swirling around the subject of affordability are truly alarming. For example, almost two-thirds of those surveyed in the recent MLC report believe the next generation has zero chance of being able to afford their own home – that’s a staggeringly gloomy point of view for the majority of people to be holding in allegedly comfortable economic times.

What’s really fuelling the affordability gap?

When it comes to identifying root causes of the affordability crisis, a large measure of blame has traditionally been flung in the direction of over-heated residential markets such as Sydney and Melbourne. More recently, however, Malcolm Gunning took the conversation in quite a different direction with his own contribution to the debate.

Pulling no punches, the principal of Gunning Real Estate put the blame squarely on Generation Y, and argued that they’re simply unwilling to make the sacrifices required in order to fund their first purchase.  Gunning rebranded millennials as “Generation Selfish”, arguing that they were more interested in shallow luxuries such as eating out and international holidays than they were in the hard graft of socking away savings for property investment.

Gunning’s position to some might seem extreme and may not win him many friends among the property-less under forties! While there certainly is truth in his comments on conspicuous consumption, there’s no denying that the decks are stacked against first-time investors in most major metropolitan markets. Hard data in the recent HILDA survey, for example, conclusively shows that entry-level properties are more expensive than they’ve ever been.


“Rentvesting” as a smart solution for millennials

Rather than martyring themselves for the sake of “getting on the ladder”, many younger first time buyers are turning to what Jane Slack-Smith, Director of Investors Choice Mortgages  and Host of  Your Property Success Podcast has described as an “out of the box” solution in ‘rentvesting’.

While Slack-Smith doesn't agree that Gen Y refuses to save and live life without luxuries, she suggests that the daunting task of repeating their parents or grandparents experience of saving to buy a home leads many to believe that as home ownership is not possible, saving for luxuries is a better alternaltive. 

‘Rentesting’ however offers a smart, flexible option that’s providing a large number of younger buyers the best of both worlds – the ability to sample expensive urban amenities as a renter, and the security of having an investment gathering momentum in the background as an owner.

While Gunning is right to stress the need for sacrifice, that’s a message that many in Generation Y have taken on board through sheer force of circumstances. Against a market backdrop where $1 million is an increasingly common entry-level asking price, mere belt-tightening is not going to be enough to narrow the affordability gap. Generation Y investors are forced to think a little more creatively and, with its clean separation of concerns, ‘rentvesting’ is a strategy whose time may very well have truly come.

The reality is that younger generations are going to have to pick their battles as investors much more carefully than their forbearers. Knowing that they’re facing into potentially choppy long-term waters, many are already using agile strategies such as ‘rentvesting’ to essentially have their cake and eat it.

Advocating the benefit of a “stepping stone property” purchase, Gunning suggests that Gen Y need to “modify their expectations.” Slack-Smith describes the strategy as “paying your future tax now – it might be that you’re relinquishing the Australian dream of homeownership in the short term to ultimately live and own where you want to while also achieving financial security”. 

It’s an approach that’s sure to gather momentum over the coming years, and one that we’ll be keeping a very close eye on across all major markets. 


Malcolm Gunning - Immediate past President and current Real Estate Institute of NSW Board Member and Principal at Gunning Real Estate

Jane Slack-Smith -  Director of Investors Choice Mortgages and host of Your Property Success Podcast and Author of Your Property Success with Renovation: 2 properties, 1 renovation $1million in the bank






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