IIM Blog

21 October 2024

The Australian property market has undergone significant shifts over the past few decades, with the distribution of wealth increasingly skewed towards older generations. This trend has made it increasingly challenging for younger Australians, particularly those under 35, to enter the property market. As housing costs continue to rise, many young people are struggling to secure their first home. However, with strategic planning and informed decisions, it’s still possible to build a solid property portfolio from scratch.

Recent data from the Reserve Bank of Australia highlights a concerning trend: older Australians, particularly those aged 50 to 60, have been borrowing more for real estate, while home ownership rates among younger people have declined. This generational divide in property ownership is growing, as noted by economists who observe the increasing difficulty young people face in affording a home.

Adding to this challenge is the fact that many Baby Boomers have no intention of selling their homes when they retire. According to demographic studies, a significant majority plan to remain in their current residences, which could exacerbate housing supply issues in the future. This situation could lead to declining property conditions in less affluent suburbs, adding further complications for prospective buyers.

Why Property Costs are Skyrocketing

The rise in property prices is not just anecdotal. Over the last two decades, the cost of buying a home in Australia’s major cities has soared, with the average price-to-income ratio climbing from 5 to 8 times the average income. This steep increase has made it harder for younger generations to save for a deposit, pushing the dream of home ownership further out of reach for many.

Alternative Strategies for Building Wealth

Given these challenges, some young Australians are exploring alternative strategies to build their property portfolio. One such approach involves delaying the purchase of a primary residence and instead focusing on acquiring affordable investment properties. By renting and investing in properties that generate income, young buyers can build equity and grow their wealth without the burden of a hefty mortgage on a home they live in.

This strategy also involves carefully selecting investment properties that offer the potential for capital growth and rental returns. By building a diverse property portfolio, young investors can position themselves for future financial stability and, eventually, home ownership.