A current trend towards renting in favour of home ownership could
alter Australia's distribution of net wealth if it becomes sustained
long term. To make sense of the trend and consider its possible
effects, an assessment of long term rental patterns is essential.
Whilst the current trend towards renting is irrefutable, the more
important questions are why is it happening, will it be sustained
long term, and what are the implications of a permanent shift?
Census, REIA and ABS statistics clearly show a decline in rental
trends since records began in 1947 from 44% of households to 28.7%
in 1996.
The rental population has remained relatively constant since 1961,
hovering between 25.7% and 28.7%.
In the wake of Melbourne's revitalisation, significant numbers
of Melburnians are placing an unprecedented demand on inner urban
housing. 1996 Census statistics reveal that it is primarily those
under 30 from the eastern suburbs who are taking advantage of
the government's spending on inner city leisure facilities and
infrastructure, contrary to the popular belief that it is the
'empty nesters.'
The Melbourne experience appears to mirror similar trends in other
major international cities. One only has to look at Paris and
New York to identify the established pattern of city living currently
in its early stages in Australia. Why is it then that this migration
seems to be associated with an increased demand on rental accommodation
in particular?
Those who are relocating and taking up this rental accommodation
are doing so for the following reasons:
- Renting
in new complexes or inner suburban developments is currently
more affordable than buying, particularly for younger people
in the early stages of their careers, since there is always
a price premium associated with buying a brand new dwelling.
Prices usually find their market level following two or three
resales.
- The
established inner suburban property market is tightly held and
there has been insufficient housing to meet the groundswell
of demand. Even though supply and demand in the established
sector is now more balanced, the availability and coverage potential
of existing inner suburban sites is low compared with the vast
tracts available at Southbank, Docklands, and the reassignment
of city offices and warehouses for domestic use.
- Inner
urban relocatees will frequently rent for a year or two before
purchasing, to ascertain whether their new lifestyle suits them.
This is especially true where the new lifestyle-is a radical
departure from the former lifestyle.
- Some
are renting so that disposable incomes can be invested in assets,
which are tax effective compared with an owner occupied residence.
- Significant
numbers are opting to delay marriage and families. Renting provides
this group with greater lifestyle choices and flexibility.
It is probably significant that rental figures appear to have
some relationship with construction patterns and related legislation.
The last construction boom occurred in the mid 1960s to early
1970s following changes in ownership of flats from Company Share
to Stratum title in 1960, and Strata title ownership in 1967.
Until then, conventional home loans were not available to wouldbe
purchasers since they did not have a freehold title to offer as
bank security.
This change made affordable inner suburban living a reality, fuelling
demand from many young people wanting to leave home and rent with
'flatmates' during their university and early working years. Unit
construction went ahead in leaps and bounds.
In 1971 rentals accounted for 27.9% of households, up from 26.7%
in 1966. Legislative changes to building guidelines and the current
construction boom appear to be exerting a similar influence. The
plethora of high rise apartments on the city fringe and the CBD
and changes in marriage and child bearing patterns are engendering
new lifestyles.
However, long term statistics show that the percentage of rental
households has never exceeded the 30% benchmark of the late 1950's
and early 1960's, notwithstanding severe recessions, legislative
changes, demographic shifts and construction booms. The 'highs'
have always moderated, as other variables have levelled out.
City renewal, increased construction and availability of rental
accommodation would therefore appear part of a predictable evolutionary
pattern to which all cities are subject. As the current under
30s age group becomes more affluent, establish careers and form
relationships, it is likely that home ownership will follow, albeit
later in their lives than previous generations.
Many recent reports on long term viability of home ownership assume
that people make one dimensional decisions regarding home ownership,
and fail to consider basic elements of human nature. The drive
to "set down roots" is a powerful one, irrespective of lifestyle
fashions, fluctuations in home affordability or advice on what
may be technically correct in an investment sense.
Whilst not all homes technically represent a superb investment,
home ownership is a form of enforced saving that creates a financial
discipline, allowing the owner to release equity for wealth creation
later on. Renting for an extended period and investing in prime
assets including inner suburban investment property could well
expedite home affordability given the tax advantages and rental
income.
The reality is that human beings have culturally and biologically
ingrained needs. These powerful catalysts motivate us to achieve
our financial and personal goals. It would be a sad state of affairs
if wealth creation became the exclusive motivation for home ownership.
If however, the rental pattern does revert to post war levels
due to severe financial hardship, we risk the bulk of material
wealth being held by fewer people, or a society in which we all
rent each other's properties and adopt a permanently transient
existence. The next Census in 2001 will be very telling.
