Generation Rent forever: great Australian dream becomes a financial nightmare

If Generation Rent fails to get a foothold in the property market, they face something no other generation has collectively experienced before – renting in retirement.

Sydney is fast turning into a city of renters with fewer first-home buyers purchasing now than ever before.

While older Australians already have an 85 per cent rate of home ownership, the number of first-home-buyer has halved in the past 10 years, latest Australian Bureau of Statistics data shows.

And 80 per cent of first-home Millennial hopefuls are unable to get on the ladder, a survey from REST Industry Super of 1000 young Australians found. About 40 per cent said they had “no idea” how they’d fund their retirement.

Association of Superannuation Funds of Australia data estimates that for someone to afford a comfortable retirement at 65, a single would need $545,000 and a couple would need $645,000, REST Industry Super chief operating officer Andrew Howard said.

“We know that home ownership is a key predictor as to whether or not a person will achieve the retirement they desire,” Mr Howard said.

But as owning property becomes out of reach for many, Generation Rent may well wonder if the reality of missing out on the great Australian dream is a future financial nightmare.

Those who do not own their home by the time they retire are at risk of poverty, according to the the Committee for Economic Development of Australia.

Scarlett Healey, 23, lives at home with her parents in the north Sydney suburb Forestville. After being made redundant from her full-time job, she took a part-time role in retail but hasn’t given up on saving for a home.

“I’ve been trying to save as much as I can. I’m putting away 90 per cent [of my income] and living on a small amount hoping my savings will grow,” she said.Part of her plan was to buy an investment property with her sister. They were considering an apartment in Parramatta as a future potential purchase, but have found it too expensive since the property boom.”At 26 or 27 I’d like to have a foot in the door, especially if I meet someone and want to settle down and have a family,” she said.

Without a home, she fears her future financial security is uncertain.

“Even the last generation is retiring later and part of the reason is bigger mortgages,” she said.

The most recent research from the Australian Housing and Urban Research Institute shows a surge in the proportion of long-term tenants renting for 10 years or more. A third of all private renters were long-term in 2013, up from 25 per cent two decades ago.

“Income support systems are premised on outright [home] ownership and therefore Australian pensions tend to be much lower than equivalent countries,” Swinburne University housing professor Terry Burke said.

“So if you are still a renter, by the time you retire, you can be in real financial stress to cover the rent.”

Many Australians have also been hit by the changing nature of the labour market, Mr Burke said, as more people find themselves unable to commit to long-term housing because of casualised or flexible work relationships.

Financial experts say it is possible, although challenging, for lifelong renters to comfortably cross the finish line into retirement.

After income dries up, a larger nest egg is needed and savings from not having a mortgage need smart investment. The key would be to invest the difference rather than simply saving, finance commentator and educator Nicole Pedersen-McKinnon said.

“Interest rates are barely keeping pace with inflation, so forget putting [your savings in the] bank,” she said.

“The vital thing is to save what you [can] save … a mortgage is the perfect forced savings vehicle. You can’t go out and drink your repayment, so a renter would have to be as focused and unwavering in their investment.”

Tax-effective wealth-building options included super contributions and investing in shares, she said.

Empower Wealth chief executive Ben Kingsley said the long-term average returns of super were below that of property, although he warned real estate was not a guaranteed investment.

He said modelling showed people were better off “rent-vesting”: where they bought an investment property, perhaps at a lower price point out of the city, and rented in the area they wanted to live.

Kevin Lee of Smart Property Adviser said while someone could “get lucky gambling on the stock market”, he agreed buying a home that someone else could pay off was one of the best ways to create equity to retire on.