Generation Y is a generation that is renowned for their desire of instant gratification, this is however, arguably not solely their fault. They have grown up in a world where the postal service’s primarily function is the delivery of their online shopping. They possess an intrinsic belief of entitlement and are frustrated with anything less than instant banking, instant messaging, instant hot water, instant meals and let’s not forget – instant wireless internet.
The byproduct of instant gratification for the current generation is not only impatience, but it has also created a generation of spenders rather than savers. This is in direct contrast to the Baby Boomer Generation, who in their early 20s were busy repaying their mortgages and creating financial stability.
What’s more, it appears that Baby Boomers and their children (early Generation X) are most often unwittingly helping facilitate the Generation Y spending culture. Whilst some parents are still helping their adult children with cash handouts, most parents are allowing and in some case encouraging their children to stay at home rent-free throughout and in some cases even beyond their 20s. This has two negative impacts on the Generation Y children. Firstly it gives their children the means to consume on levels incomparable to previous generations, and secondly it reduces the drive for financial aspiration and responsibility of consequences.
Reliance on the “financial umbilical cord” has been getting progressively longer over the past 10-20 years, and today’s Australian society doesn’t consider a child has graduated from adolescence to adulthood until their mid-to-late 20s. The average age of marriage and having a first baby has continued to increase from the early 20s back in the 1970s, to late 20s and even early 30s in 2013 and beyond.
Societal values and attitudes, however, are only one piece of the puzzle. The rise of the internet, modern advertising, and the inception of social media has placed unprecedented availability and peer pressure on Generation Y to consume. Modern technology allows this generation to see everything they are not buying, holidays they are not having, parties they are not going to and important life experience they are missing out on in real-time.
Perhaps the most influential factor contributing to the monumental shift of saving money to spending money is the rise of consumer credit. Coming in the form of credit cards, store finance (pay nothing for 24 months) and unsecured personal loans, now almost anyone over the age of 16 can apply for credit to buy anything they want. This is in stark contrast to the 1970s and early 1980s when the only finance available to Baby Boomers was a mortgage and to get that they had to save a sizeable deposit – on their own.
A Baby Boomer in their youth had to work first, get paid, save and then purchase. Today, Generation Y is the direct opposite they purchase first, then work or receive a “bailout” from their parents, then repay the purchase (plus the interest). It is quite simply a different attitude, and we can hardly blame them for being a product of their era. They’ve grown up without having to wait for anything, they are mass marketed to and banks or their parents provide them with the means to spend money they haven’t earned, and voilà, the buy now, pay later culture is born!
The end result is Generation Y as a whole are having a difficult time saving. The buy now, pay later cycle is difficult to break, and some of this generation will remain in consumer debt for a full decade after they leave school. It’s not until the cycle is broken that this generation can begin the saving process, and this coupled with the largest gap between income levels and house prices than ever before, has already started to reduce the pool of First Home Buyers (FHB) who are able to purchase.
The FHB segment of the market in most capital cities are beginning to represent smaller percentages of all purchases, as affordability issues and a lack of saving compound. As can be seen in the charts below, Queensland and New South Wales are at the lowest FHB levels ever seen in their respective states, and Victoria has also started a downward spiral since their State Government followed the lead of other states and tightened the rules on FHB concessions as of July 2013. Let’s not forget that we are experiencing this reduced level of FHB activity during a time when interest rates are at the lowest level in Australian history. Western Australia remains the lone state to buck the trend, however on a national level, FHBs are at their lowest level since 2004 which is significant because the last sharp decline of FHB activity was caused by a rising interest rate environment, the opposite conditions to present day. So it’s fair to say the issue of Generation Y being unable enter the property market is not cyclical and if the trend continues we risk a segment of the property market being completely wiped out, which will lead to dire consequences.
The reduction in FHBs entering the market places a greater reliance on investors and up-graders to carry the weight of the market and drive growth, but they can’t sustainably do it on their own. In order for the market to be stable it needs a healthy mix of buyers from all segments. When you have excessive investor activity this generally leads to unsustainable short term demand resulting in strong price rises followed by a correction. The Gold Coast is a good recent example of a market that relied heavily on investors and prices consequently plunged 30%. There is no doubt that investors over the last few years have increased their market share of purchasing, but most have largely been encouraged by witnessing short term growth and believing the myth that house prices double every 10 years.
The consequences that uneducated investors aren’t aware of yet is what will happen to their properties when the market’s growth rates slow and the cycle changes from boom to bust. Questions only time will answer – but it’s what you need to be thinking about in order to prepare yourself and readjust your strategy to take advantage of the market that is coming. The landscape has changed, and will continue to change. If you aren’t arming yourself with knowledge and support, then you are leaving yourself and your future to chance.