Never let the property facts get in the way of Millennial bashing

By Leith van Onselen

Arthur Ilias, the head of the Urban Development Institute in Australia (UDIA), is the latest so-called expert to blame Millennials’ supposed spendthrift habits for not being able to afford a home. From The Daily Mail:

Mr Ilias says people born between the mid-1980s and 2000 prioritise ‘gadgets’ and luxury over entering the housing market…

‘Our kids today are happy to stay at home for as long as they can, have a great time enjoying their Master Chef lifestyle with all of their devices and gadgets’…

‘And then eventually rent somewhere when Mum and Dad say “enough is enough”…

If Ilias had actually examined the data, he would have seen that today’s millennials are actually more frugal than their baby boomer parents.

The ABS publishes survey data on household expenditure and its shows clearly that in 2010 (latest available), 25-34 year olds spent less on food, alcohol, and recreation (let alone cigarettes) than they did in 1984:

ScreenHunter_15620 Oct. 21 07.53 ScreenHunter_15621 Oct. 21 07.53 ScreenHunter_15622 Oct. 21 07.53

By contrast, they spent way more on housing than their baby boomer counterparts:

ScreenHunter_15623 Oct. 21 07.53

Research from the Grattan Institute has also found that younger Australians have been containing their spending and boosting their savings:

Savings are particularly important for young households that have few existing assets. Overall household savings increased markedly over the decade. The savings rate increased from just 0.4 per cent of after-tax income in 2003 to 10 per cent in 2013. All age groups saved more of their income, but households aged 55-64 increased their savings most (Figure 2.7).
ScreenHunter_15669 Oct. 25 08.50

Even though their spending increased more than any other age group, their incomes grew even faster (Figure 2.8). Young households also saved more (Figure 2.7). They did so by containing spending as their disposable incomes increased (Figure 2.8).

ScreenHunter_15670 Oct. 25 08.51

Grattan also showed that under-35s enjoyed less real income growth than older cohorts over the 35 years to 2011:

ScreenHunter_15671 Oct. 25 08.53

In short, Ilias is full of it. The data does not support his assertion that Millennials are enjoying a “Master Chef lifestyle”.

Instead of bashing Australia’s youth, Ilias should drop the UDIA’s staunch opposition to negative gearing and capital gains tax reform, given the data clearly shows that investors have crowded-out first home buyers:

ScreenHunter_15665 Oct. 24 17.39

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Leith van Onselen

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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  1. UrbanWastelandMEMBER

    The statement would make sense if you simply replaced “are happy” with “have no choice but to”.

  2. Okay so I’d never heard of the Urban Development Institute in Australia, but when I followed some links to their website and checked the local-est branch (Vic-Tas) I saw a link to their 2016 Advocacy Agenda. I thought I would have a quick look, and I was slightly surprised to see I could have that in either English or Mandarin. That’s nice, isn’t it?

  3. Yeah the gadgets they cost so much. My computer cost $800 which I’ve had for maybe eight years now. And I’ve spent about that much on phones in the same period of time.

    How many weeks of mortgage payments would that cover?

    Does any one believe this shit?

    • These are the morons who paid $10,000 for a Plasma TV once. They’re freaking out that following generations will be less inclined to put every single dollar into the property market, and use “equity mate” to buy overpriced crap later on like they did. God forbid some might actually be saving and paying cash to enjoy some of the good things in life.

      It must kill them that it’s possible to watch 5 movies in a day for almost nothing when they had to spend $6-7 at Video Ezy for one new-release film that they had to wait a year to see, they had to physically pick up, rewind and return or face a fine. Times have changed. The prices of things go in a big way to driving behaviour. It’s actually great to watch if you’re not on the wrong side of the debt slavery. To paraphrase that Fwit Kouk: Economics works, dipshit!

      • Exactly. The oldies have not grasped just how cheap stuff is now in real terms, consumer surplus increases in true free markets. If they flew anywhere, made a toll call, sent a telegram, went to the movies regularly, bought milk bar drinks, it cost them. They don’t get it that the young today are spending less even though they are “consuming” a lot more actual socializing and entertainment.

        Housing used to trend in the direction of increased consumer surplus too – houses got bigger and better and sections got bigger, for the same real price. The corrupt establishment in Australia has reversed this trend. Economic rent is the flipside to consumer surplus, economic rent involves forcing people to pay more and more for the same or inferior goods. It always involves some kind of racket in “supply”.

  4. What about the rest of the income? Those 4 categories are only 39.6% of income? What does the whole picture show?
    Is the rest going on trips to Bali and Thailand or into super or investment or mobile phones, cars?
    And is the housing expense adjusted for location and quality and prices rising in the now middle rings that were the outer rings 30 years ago?
    And even if they are spending more is that a bad investment or not?
    Surely that is the big question?
    And those who started spending big 5 years ago have reaped an incredible capital gain, which, based on the last 50 years history, is not likely to ever be completely eroded even briefly in any future market adjustments, so they were smart to spend more on housing and less on other consumables.
    And is the housing expense including capital repayments in the home loan?
    And is the capital repayment amount in each home loan now higher than it was 10 years ago? (The principal component of a home loan is usually very small early in the loan and especially if the interest rates are high, but if interest rates are lower, the principal component in the early payments will be higher and the total borrowing amount higher in a standard 25 year variable rate home loan, so doesn’t the extra expense likely represent the extra principal being repaid on the larger loans, given the lower interest rates?

    • No Explorer, you are comprehensively wrong. Youth of today are spending less in every single category compared to youth of 20-30 years ago.

      It may not ‘feel’ like it to you, luckily ‘feelings’ have no influence on fact.

    • Ronin8317MEMBER

      There is no affordable ‘outer ring’ anymore these days. Take Sydney for example : in the 80/90s areas around Minchinbury is cheap, in the 90/00s the boundary is at Campbelltown. Now in 2016 even for far away area like Picton a new house is going for 800k : and that place is further away from Sydney than Wollongong!!

      • Why do millenials think that they are entitled to a new house in an outer suburb.
        None of my friends bought a new house when first married and very few have built or bought a new house.
        Most bought an older house in need of a substantial modernisation renovation, or at least new kitchen or bathroom. Everyone bought a house that was at best very tired and often with overgrown gardens. Then over years they did them up, generally doing their own clearing, gardening and painting. Some worked second jobs such as uni lecturers after they had completed their qualifications.
        Here is what you can get in one suburb for around $400k-500k at Cambridge Park near Penrith.
        Seems to me there are plenty of propoerties for sale that Millenials can afford if their priority is to buy. If their priority is a short commute and an innercity lifestyle then they will rent. It’s all a matter of priorities. Set your goals and work towards them. It has been refreshing to see some acknowledge that they have made a choice to have kids at private school and to rent. They have made a choice and are prepared to own it.

      • $400-500k is affordable if your income is ca. $140-150k.

        Where are the $150-200k houses – heck, even apartments – for average punters earning $50-60k ?

      • Explorer: the way the market is distorted, involves that it is almost all in the LAND value. “House prices” have doubled or tripled but what has really happened is that the dirt underneath them has inflated tenfold in “value”.

        Literally, what used to be a brand new fringe-suburb home at $200,000 for the structure and $40,000 for the section, is now $200,000 for the structure and $200,000 for the section which is now half the size. What used to be an old-suburb, fixer-upper home at $40,000 for the structure and $100,000 for the section (due to more central location), is now $40,000 for the structure and $1,000,000 for the section.

        That is why young people are not doing the fixer-upper thing any more. Understand?

      • Literally, what used to be a brand new fringe-suburb home at $200,000 for the structure and $40,000 for the section, is now $200,000 for the structure and $200,000 for the section which is now half the size. What used to be an old-suburb, fixer-upper home at $40,000 for the structure and $100,000 for the section (due to more central location), is now $40,000 for the structure and $1,000,000 for the section.

        The other place this manifests is in McMansions.

        Because if a 3 bedroom house costs, say, $200k but a 5 bedroom house costs $250k and they’re both going onto a chunk of land that costs $500k, why wouldn’t you get the bigger one ?

    • Explorer: because interest rates and the rate of inflation (and hence income adjustment) almost cancel each other out, the principal (or house PRICE) determines the long-term sacrifice made by the buyer of the first home. It is pretty much a hard-and-fast rule that if you borrow 3 times your income it will swallow 10% of your income over 25 years; if you borrow 6 times your income it will swallow 30% of your income over 25 years. That is 3 times as much. That is a LOT of discretionary spending foregone, a lot more deprivation of children (music lessons, sports gear, orthodontry, etc) and much longer spent at risk of bankruptcy in the event of misfortune (accident, crime, disaster, illness, unemployment, etc).

  5. These people wont be happy until 100% of peoples budgets are devoted to real estate, so warped are their perceptions of what is and is not a productive use of valuable capital. They wish to now hollow out the services economy, all in the name of “getting on the ladder”. Its become completely moronic. That the needs of a small cohort of investors is being out before the needs of younger generations is such bad policy. The Liberals should be worried, they are creating a shifting electorate of renters who feel less attachment to their communities and society….the exact opposite of the classic dependable conservative voter.

  6. Australian obsession with Real Estate is a disgrace. Why does anyone have to own/borrow to live in a house. Shows like the Block is more propaganda for the morons to soak up and get that feeling “I have to own realestate” The sooner this Ponzi scheme ends the better for everyone…

  7. The young can eat SoylentGreen on their toast with salt to service ME, or they can be SoylentGreen on toast for those who will.

    SoylentGreen, advocado its all green, go, for MY environment.

    John Howard eat youth now party lives on. Menzies help youth own their home for the good of the nation and counter communism is dead.