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‘Generation rent’ cashing in as house prices out of reach

You don't spend the time or the money updating or fixing the home if you rent. Photo: Shutterstock

You don't spend the time or the money updating or fixing the home if you rent. Photo: Shutterstock

They have been dubbed “generation rent”, the middle-class professionals who, despite their solid jobs and squeaky-clean credit rating, cannot afford to buy a home within a short commute of our capital city CBDs.

“The reality is that for many people, no matter how many policies are put in place, home ownership will remain out of reach,” finance editor of onthehouse.com.au, Peter Boehm, said.

“Entry-level homes in good locations don’t exist anymore.”

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Where once we assumed that renting was a transit point along the road to home ownership, for many people it is becoming a permanent resting place.

According to last week’s data release from the Survey of Income and Housing, 31 per cent – almost a third – of all households rent. Another 31 per cent own their home outright, while 36 per cent of households have a mortgage.

But is renting really the money pit we are told it is? And is it time to start reimagining the great Australian dream of home ownership?

Pros of renting

There are numerous property experts happy to sing the praises of renting.

For starters, it is often cheaper than servicing a mortgage, according to Mr Boehm, which will take many people the full 25 to 30 years to pay off.

calculator and tax

You’ll be paying a lot less tax if you rent, as opposed to buying a home. Photo: Shutterstock

“Apart from the bond you have to raise, it is a lot cheaper than buying a home as you don’t have stamp duty, council taxes and maintenance issues,” he said.

“Even after you have bought a home, you need to keep spending money on it. There are things that need doing, such as updating the kitchen or renovating the bathroom, there is always something.

“And renting gives you a lot more freedom and flexibility in your life.”

Property investor Sasha Hopkins agrees.

“There is much less of a financial commitment when you rent,” he said.

“And you get to live in a suburb you otherwise couldn’t afford to buy into. For example, I am renting a townhouse in Melbourne that would cost $1 million to buy but we rent for $600 a week.”

Longer leases 

Perhaps one of the greatest criticisms levelled at renting is the lack of stability it affords tenants, especially families.

It is not uncommon for renters to be moved on after a couple of years when landlords choose to sell, forcing them to plan their lives around year-to-year leases.

To address this problem, the Victorian Government has floated a review of tenancy laws to assess the viability of five- and 10-year leases, as is the case in some European countries.

It makes renting a much more attractive prospect and gives landlords a guaranteed rental income for a lot longer period.

But Mr Boehm is cautious about the merits of such a plan.

“What happens if the investor has to sell? It really locks people in,” he said. “Furthermore, renters are able to negotiate the length of their tenancy agreements.”

Thinking creatively

There is a good reason Mr Hopkins is such a fan of renting – at the age of 27 he has used it to amass a property portfolio containing 12 investment properties.

bathroom plumber

You don’t spend the time or the money updating or fixing the home if you rent. Photo: Shutterstock

“My strategy involves choosing to rent where you want to live and then buying properties as investments that will be paying for themselves,” he said.

“You can then use those investments – they may only be apartments – to buy your own home outright down the track.

“If you take on a big mortgage up front, however, you will be left with little borrowing power to create wealth.”

But what about the threat of being moved on by a landlord?

“There is always that possibility, but investors tend to want solid, reliable tenants so if you respect the property then generally the landlord will want to keep you,” he said.

In the end, the decision to rent or buy will come down to where you are “in your journey in life”, according to Mr Boehm.

“You don’t have to buy to live in a nice home and it is always much better to test a suburb out first,” he said.

“As a young person, for example, why would you want to be tied down to a 25-year mortgage?

“Renting is not necessarily a bad thing, it all depends on your personal circumstances.”

Johanna Leggatt is a Melbourne-based freelance journalist. Follow her at @johannaleggatt

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