This post originally appeared on VICE Australia.
The anxiety that you'll never own a house and will hence die in abject poverty increases considerably as you move through your 20s. You might find it's triggered by Facebook photos of high school acquaintances' starter homes or passive aggressive emails from your parents. Or maybe it's the fact that everywhere you turn, someone is telling you you're an idiot for renting. Which is a little harsh.
It's not as if we're avoiding our financial planning on purpose. Everyone wants security and space to live out their Pinterest dreams. But the current state of housing affordability in Australia means that saving for a deposit usually involves moving back in with your folks, relocating to the middle of nowhere, or getting hit by a rich person's car.
As you may have realized, you're not the only one in your late 20s and still renting. This year's study from the Australian Institute of Health and Welfare (AIHW) found that more than half of 25- to 34-year-olds in this country are in the same position. Across all age groups, one quarter of Australians are privately renting. That's a seven percent increase in the last decade.
There are a number of factors that we can attribute this to: we're getting married later, traveling more, and our average wages aren't growing at a rate that can meet rising house prices.
With that in mind, is renting for the next 10, 20, or 50 years even that bad? And does the great Australian dream still hold up?
Last year the Reserve Bank of Australia (RBA) released a study saying that over time, it's cheaper to rent than buy a house. But just 12 months later an RBA researcher concluded that under current market conditions, it's a better idea to buy than rent. If the RBA can't figure it out, any confusion you may experience is totally understandable.
So let's attempt to break it down.
Is Renting a Total Waste of Money?
Realistically, renting is the only option for a lot of us right now. "It's considerably tougher for young people to get out of renting and into home-ownership than it was in earlier generations. A lot of people don't have any option but to rent at the moment," says Dr. Wendy Stone, the director of the Australian Housing and Urban Research Institute (AHURI) at Swinburne University. "What we've seen in Australia in the last 30 years is a substantial increase in the cost of home ownership relative to increases to income and earnings in the same period."
But while more of us are renting, our attitudes aren't shifting accordingly. For a long time, renting has been seen as the less responsible option, and a bottomless pit for cash you'll never see again. But Dr. Nigel Stapleton, a fellow in real estate economics at the UNSW, feels the well-worn belief you're wasting your money is misplaced. "You're getting a service," he told VICE, "You're consuming housing, so I don't buy that argument at all."
Does Renting Have Any Advantages Over Buying?
There are obvious pros. For one, it affords flexibility to move around. If you're in a job that may take you interstate or overseas, or you're funding a trip to discover yourself, the last thing you want is a mortgage for a house you're not living in.
Also, not everything in life is as certain as a home loan. The 2015 AIHW report cited that between 35 to 54—the years of working life when you're most likely to be in a relationship and settling down—are when loss of employment, relationship, and financial stress, and breakdowns are most likely to occur.
Additionally, Nigel challenges our established assumptions that buying a house is a risk-averse piece of future-proofing. Housing bubbles burst all the time, meaning some people get stuck with decreasing investments. "Six months ago, the housing market was on fire. It's cooled off quite dramatically since," explains Nigel. "So if you bought a house six months ago and are selling now because you've changed jobs or something like that, you'd be sitting on a loss given transaction costs and the like."
But Is It Actually Feasible to Rent Forever?
Yes and no. The hard truth for low-income earners is that renting into your retirement years isn't advisable—at least not under Australia's current pension and tenancy laws. "Pensions and policy rely very heavily on people owning a home by the time they retire," says Wendy. "The pension is set at a rate that assumes you don't have to pay much for housing."
Unlike some European countries, Australia's tenancy laws don't encourage long-term renting. A typical lease here is 12 months long. "In some countries across Europe, regulations enable people to rent for 10 years or longer," says Wendy. "There are also models overseas in which rent rates are capped and more predictable for people. Australia's private rental market has very short-term leases, and that makes it expensive each time you move. It creates a pattern of insecurity and undermines your ability to function in the labor market."
So I'm Still Fucked. Is There Any Way to Be Financial Stable in Old Age Without a House?
Yes, but you're going to have to invest somewhere. Monthly rent is generally lower than mortgage repayments, so you need to be smart with where you put your savings. Creating a diversified investment portfolio—putting money into term deposits, shares, and bonds—can yield high rates of return without relying on the housing market remaining stable. It's more work, but you can also maintain a lot more financial and lifestyle freedom.
If I'm Really Organized, Is There Any Way to Have the Best of Both Worlds?
Yes. You can also rent while buying lower-priced investment properties to lease out. This is helped by Australia's negative gearing policy: a tax concession that ironically makes it harder for young people to buy their first home, but benefits property investors.
"We do see young people working out how to navigate this difficult housing environment," says Wendy. "People are looking at creative ways to either reduce the cost of renting, or to make home buying work. We've seen siblings purchasing a flat together that they might rent out to someone else, and use that investment as a means of building up enough money that they can then have a deposit for their own home later."
Ultimately, finance-wise neither path is easy. Buying brings stability but tethers you to a place and a mortgage repayment. Renting is more flexible, but to have any long term security you'll have to work hard at saving and start reading more books about what to do with your money (hint: not buy a Thermomix). At the risk of boiling financial matters down to Oprah-isms, it really does come down to what you want from your life. Either way, we should scrap the idea that home-ownership is the only option.
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