As students, there are many reasons for us to go to university. Firstly (and arguably most importantly), we study because of a passion for a certain discipline or career. But most people go to university for monetary reasons as well. I am sure that many students completing a bachelor’s degree – or even more so a Master’s or PhD – would like to think they could live a comfortable life with their future earnings. This, we would all assume, entails owning a home.
My parents were able to leave home before they finished with their studies, but for most students now, it is extremely difficult to support yourself entirely whilst studying full time.
But after university, at least, it should be achievable to buy a house, right? Maybe not.
Since 1995-1996, the percentage of renters has risen from 19 per cent to 24 per cent in 2009-10. The proportion of home owners with mortgages rose from 28 per cent to 36 per cent in the same time period. It is becoming more and more difficult to own a home; many are caught in the ‘renting trap’.
Last month, Melbourne house prices jumped by 3.7 per cent. The median price for a home in Melbourne is $540,000. Despite a lull in autumn, housing price rises across the capital cities of Australia have become extremely aggravated again in the winter months. In July, HSBC stated that house prices have risen 16 per cent nationally over the past two years.
Not only have our prices been consistently rising, but our homes are valued much higher than the equivalent in other countries, says the IMF. Our price to income ratio sits higher than the UK, New Zealand and much of Europe. In fact, ours is the third highest among developed nations. We are also ranked fifth in house prices to rents ratio.
Currently, the RBA has kept the cash rate at 2.5%. This rate, lower than during the GFC, means that banks are able to offer mortgages at a lower rate. Thus, this drives up the demand for mortgages (and hence, houses), which forces up the price of homes. Perhaps the rise in mortgages is self-perpetual: the demand for mortgages increases, so houses become more expensive, therefore the demand for mortgages increases etc. The RBA highlighted this in their report on overvaluation of housing.
So, if prices continue to rise in such a way, are we likely to face a real estate bubble? Or, even more pressing, are we already in one? Deputy managing director of the IMF, Dr Min Zhu, suggested that monetary policy would have to concentrate more closely on the housing market to avoid a crash in prices. The RBA, though, states that we are not in the midst of a housing price bubble. Many analysts suggest that the housing market is unlikely to drop dramatically, but level out over time. While I am sure many young Australians would love to see a dramatic 10-20 per cent drop in house prices, avoiding a bubble burst is, of course, beneficial to the economy.
Unemployment is also a concern for those in the real estate market, peaking at 6.4 per cent this month, higher than the US. Youth unemployment in particular is quite worrying. The jobless rate for 15-19 year olds is currently 20.4 per cent, and in that category, those without a job looking for full-time work is 30.1 per cent. Damian Oliver from Sydney University’s Workplace Research Centre has actually stated that vocational qualifications may actually be more beneficial to young people than university qualifications. These are often cheaper and they apparently provide “more reliable labour market outcomes”. I’m sure there are plenty of students out there who would find this disconcerting.
But, is renting so bad after all? The RBA does not seem to think so. They argue that the current rate of house prices would need to continue for at least six years for home-owners to be as well off as renters. Some observers predict that housing prices, though remaining high, will begin to plateau in the coming years. If this were to be true, the RBA argues that it would be better to rent than to own. So, this is some solace for those unable to afford a home. But, of course, it does not take into account the emotional stability and security of owning a house. Australians buying houses in the coming years with large mortgages attached, may find that financially, renting would have been more beneficial. So, the paradox of the predicted plateauing price levels is that renters are better off financially.
So, as unemployment levels and housing prices remain high, youths continue to struggle in the housing market. I, for one, do not want to be living at home at 30. My father left home when he was 17 to study. And it was not extremely difficult then to do so. Even for those who do study, who want to ‘get ahead’ and differentiate themselves from the rest of the labour force, their degree may not be the most secure in the current labour market.
As one of the most overpriced countries in the world, this issue needs to be properly addressed. As a student, I want to be able to graduate knowing I will have a more stable future ahead of me. That stability includes owning a home.