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15-11-2014

Gen Y needs hope for a home

A recent report showed that Generation Y, those under 28, were increasingly believing that home ownership was unachievable and were spending their money on travel and shopping rather than saving for a deposit on a house.

If this is true then all the commentators who have bombarded us with how housing is grossly unaffordable and out of the reach of young people need to shoulder the blame. These commentators may think they are sticking up for the young, but they are not doing them any favours at all.

Young people do need to hear some home truths (pun intended) but they also need to hear that home ownership is possible and that there are strategies for how they can achieve it.

First some home truths. No one has a right to home ownership. It is just as hard to get into your first home today as it has always been. You are not going to get your dream home first up. If you want to own your home you have to make it a priority and prioritise your spending to save a deposit. It will probably be more expensive to own your home than to rent it, but you will be better off in the long run.

A West Auckland couple were recently in the media saying that they couldn't afford a home and were "trapped" as tenants. They had one child but were living in a three bedroom house and paying rent in the top 25% price band. If they rented a 2 bedroom moderately priced house this alone would save them around $120 a week or $6,000 a year.

This couple were on a single income of over $80,000, which is quite a bit higher than average. Through a cheaper rental and careful budgeting they could save $300pw. In five years this would amount to around $80,000 in savings. Combined with a Kiwi Saver first home grant and withdrawing their employers contribution, this would increase the size of their savings to around $110,000.

Using this as a 20% deposit they could buy their first home up to a value of $550,000. However they would probably be better off buying a cheaper $450,000 home with a more manageable mortgage. By doing this they could be in a debt free home in 25 years. In all likelihood they would be able to upgrade their home after a few years and still be in a good financial position.

First home buyers need advice on how they can get into home ownership. For instance, it is a lot easier to get a home before having a family. Get flatmates to supplement your income or buy with friends and share the cost. Buy a do-up and add value to it. Get a second job.

If none of this sounds appealing then a valid choice is to take the cheaper option of renting and have more money to spend. It's all about individual choice.

Property investors are frequently accused of keeping first home buyers out of the market, but I would suggest media commentators negative attitudes are more to blame. I hope their negativity is replaced with some practical advice for those who want to get into their first home.

Tags: federation reports

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