With housing affordability steadily growing out of reach for an entire generation of Australian’s, it’s time we start redefining what it means to own a home in 2017 Australia. For many decades, the Australian dream was kept alive by cheap and abundant housing, close enough to the places we worked yet far enough to get out of the hustle and bustle of the major cities. We prided ourselves on having the quarter acre block to call our own. In the new millennium, this began to change as home ownership rates slowly declined, housing prices continued to rise and emerging generations are now faced with little choice other than to rent the home they live in. Is that such a bad thing?
A recent article published on Domain.com discussed Rentvesting as the strategy for first home buyers that’s ‘creating a city of landlords.’ Rentvesting is the coming together of renting your principle place of residence while investing in property for others to live as tenants. The investor is able to build their wealth in form of a property portfolio while having the freedom and flexibility of renting the home they live in. The strategy has become popular in the changing property landscape as it estimated around a third of real estate investors rent rather than own their home.
Let’s take our emotion out of the equation for a moment and ignore the fact that the ‘Australian Dream’ is not quite what it used to be. Looking at it purely from a number point of few, how does this investment strategy of Rentvesting work for the younger generation who will now be faced with a lifetime of renting instead of a mortgage. Owning your own home can be quite costly and while you are able to pay down a principle and have money tied up in your own property, is that really the best use of your capital? For a business to own their own property, they would take on a much greater risk by taking on more liabilities in the form of the mortgage. A real estate investor operates much like a business. If they were to purchase a home, their capital would be tied up in a non-income producing asset. There would be less tax advantages through negative gearing. There would be a greater risk to that capital in the event that circumstances change such as a job loss or downturn in the housing market.
Owning your own home can be quite satisfying and many will still have this as a goal in the future. From an economic point of view however, the numbers tell a completely different story. Have a read through the Domain article as well as the case study from a Millennial who has turned an investment strategy into a lifestyle and make up your own mind. Maybe renting the place you live is sound strategy after all!