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Happily ever after does not begin with Once upon a time: it begins with the decisions we make Now.

Living happily ever after — in a rented house, maybe

At a recent business conference the presenter, a young speaker from Generation Millennial made some insightful comments about changes he saw occurring in Australia - the rise of the sharing economy (ride-sharing, home sharing and job sharing) and how these new approaches to ownership were changing the way people thought about traditional forms of ownership.

Some interesting insights, I thought.

He went on to list emerging business examples of the new sharing and rent-on-demand economy including renting music through Spotify, accessing movies on demand from Netflix, renting a community car (or van) from the Car Next Door and renting movies online direct from YouTube.

Add to this ever growing list of rentables the prospect of renting a driverless car in the future and it was a great high level presentation; all until he made the rookie mistake and said,

‘So what's the point of owning a house today, when I can just rent one or rent an Airbnb whenever I want?’

Boom!

With that potentially naïve comment to a room of financial advisers, his presentation fell off a cliff into irrelevance, all because he didn't understand the place family home ownership holds in the Australian economy (and the stable cashflow needed for life if you're renting forever).

Read in this article

Dreaming of somewhere to live forever?

Traditionally, the Australian Dream was always to own your house on a quarter-acre block of land.

  • The expectation dates back to the period of reconstruction following World War II and the belief that a house in the suburbs would provide stability for a growing family and somewhere to live in old age.

Now admittedly a lot has changed in our Australian cultural expectations along with the shrinking size of a typical block of land – understandably so – still, everyone wants to be able to live next door to the beach (and the thought of having to find an alternative location is just not an acceptable option on any teenagers radar at the moment).

So how does the traditional home ownership model affect our plans for the future?

Assumed home ownership has been a default part of our government's financial modeling of an average person's retirement position. Financial forecasts, the allocation of government resources and tax law has all favoured the assumed home owner.

  • But today not everyone will have the luxury of owning their own home (or living next door to the beach) - and it's time to better understand how that reality will affect you and your family.

To own a home or not own a home - that is the first question

As a financial adviser, I'm always looking for ways to better protect the present and provide for the future, looking over the horizon at possible risks and opportunities we all must face.

You don't have to look far in the media to find recurring shallow and purposely inflammatory articles about children being priced out of the homeowners market, promises of perpetual housing booms (dodgy apartments with questionable foundations and fly-by-night-developers) and property spruikers a plenty all crystal ball gazing to tell you the next best location to buy, build or sell.

Creative ways to help fund the Great Australian Dream

In response to the growing cost of home ownership, some funders are now providing creative ways to help families provide equity-based deposits for their children's home ownership dreams through Family Guarantee Loans and Family Pledge mortgages.

The reality for us all is as we age, we all need a place to live.

The older you get the less tolerant you are of living at risk of moving house every 6 months, facing ongoing increasing rents, and perhaps not being able to have a pet, personalise your home or install a carport in a rented house.

Getting older is expensive

  • The statistical reality is we burn up 30% of our lives expenditure on health care, in the last 10 years of life.

Renting forever means you have to generate an income, forever

  • The average Australian single pensioner has an entitlement to the government's aged pension of about $860 per fortnight and a couple about $648 each a fortnight, depending on the ever changing assets test and income test. You can keep track of these changes here.
  • The average cost to rent in Sydney according to the annual Domain Property Report in December 2020 was $540 for houses and $495 for units.
  • Put into fortnightly figures, the average cost to rent in Sydney in 2020 was $1080 per fortnight for houses and $990 per fortnight for units.

Superannuation assumptions about owning a home

When it comes to much of the advertising about Superannuation and how much you need to have a comfortable retirement, check the fine print to see if they’re making the assumption that you own your own home and have zero home ownership costs.

Four main problems for Australians facing retirement

  1. Not owning your own home and having to rent forever in retirement.
  2. Not owning your home mortgage-free in retirement and having to use the bulk of your superannuation (or aged pension) to pay off your mortgage.
  3. Needing to spend increasing amounts of money on decreasing health.
  4. Outliving your remaining savings in your super or elsewhere.

Retiring without home ownership - and what it means for you

As rising housing costs see more retirees enter retirement with mortgage debt in tow, the Australian retirement system's ‘almost unstated assumption’ is that most retirees will have zero housing costs.

  • Those retirees entering retirement who don't own their own home will be forced into the private rental market.
  • The evidence is these retirees actually spend a higher proportion of their lower incomes on rent and housing costs than people who are still in the workforce.

The rise of a new generation - Generation Rent

A new Generation Rent is emerging in Australia. The social dynamics and flow on effects are still to be seen. Some attribute this to the rise in Elder Abuse and financial abuse, while others the increase in consumer spending as a continual lifestyle rather than a means to an end – and everyone is quick to say the government has to do something.

  • As the number of retiree homeowners decrease, the specter of adding annual land tax to the family home returns as a political reality, as does reducing the capital gains tax exemption on the family home thereby incurring an inheritance tax and the return of additional death duties.

Retiring with a mortgage still in place - and what it means for you

A significant problem is the growing proportion of people entering retirement with still significant debt levels hanging over their heads and having to use their superannuation funds to pay off that mortgage debt.

While this may be the rational thing to do, the flow on effect is there are less super savings available to continue to invest to provide a retirees income - and thereby forcing them to be more reliant on the government's aged care pension scheme.

The rise of the sandwich generation (those trapped between providing for young families and at the same time providing for elderly parents), risks creating a continuing cycle of debt in retirement for those in the middle of this now growing social phenomena.

The unwelcomed surprise is there will be a growing number of retirees who might have thought that by saving for superannuation they would have a comfortable retirement and higher standard of living, only to find out that they don't.

What can you do today?

Greater financial awareness and education is the first step to changing our attitudes and behaviours.

  • Learning to live on less than you earn and finding out what you can do with the balance of your money, so you can get ahead are all practical skills that we can improve upon.

Basic Premise:

  1. You have to earn an income, live on less than you make and use the difference to put towards saving for something.
  2. Either way, you cannot expect to get ahead if you're not prepared to take an interest in money matters, learn and apply what you learn.

Some alternatives to buying a home to live in - things people do

For a variety of reasons understandably not everyone is focusing today on buying a home to live in. A person's needs and financial situation are as different as there are reasons why we live the life we do.

What are some of the options people consider as an alternative to personal home ownership?

  1. Buying an investment property - and using it as a forced savings vehicle (not a future home).
  2. Buying a property with others as a form of savings.
  3. Maxing out their Super Voluntary Contributions (careful it's a permanent thing).
  4. Consolidating and prioritising paying down your debt before you're too old for a home loan.
  5. Start a forced savings plan of $500 per month into managed investments as soon as you can.

Parenting Tip: make this compulsory from age 18 if your children are still living at home and consider making it a requirement that an additional $100 per week goes into their investments (before their Deliveroo fast food delivery account)

Personal skills to improve your options - however you choose to live

Have more than a general idea - have a plan

The idea of living happily ever after has an assumption that home ownership is also already sorted.

If we’re honest as we look over the horizon to older age, we all hope for a fairy tale ending because it seems to smooth over the rough realities that life doesn't always work out the way we want.

Having backup plans, extra financial resources and liquidity and some fresh skills about how to look over the horizon for what's coming, are all important and critical life skills to help you manage what life throws at you. (Pandemic anyone?)

If you need to refocus on your living situation, consolidate and prioritise getting out of debt sooner than retirement and getting better had handling your surplus income, now is the right time to make that decision and chose greater certainty rather than risking the assumptions that everyone always lives happily ever after, in a rented home.


author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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