According to a study performed by the University of New South Wales (UNSW) in Sydney, median rents have increased since the COVID-19 pandemic, and the shortage of social housing has continued to intensify. Through a combination of factors, the Australian housing market has become a commodity for speculation in which young individuals cannot afford to participate. It may be one of the most reliable investments in the traditional sense, but young Australians lack the capital to afford property.
Insight from the ABS
In May of 2024, the Australian Bureau of Statistics (ABS) stated that the average weekly income of a full-time adult in Australia is around $1,920. However, when taking the average between Gen Z and Millennials, weekly earnings are much lower at around $1,240. Another report by Monzo states that the average median rent price is $627, accounting for nearly half of weekly earnings among Gen Z and Millennials and less than a third of weekly earnings for older members of the population. To make matters worse, the consumer price index has gone up by 2.8% as of the September quarter of 2024, per the Reserve Bank of Australia.
Renters Leaving Major Cities
Many Australian renters have made the decision, either of their own volition or not, to leave cities like Sydney and Brisbane. The Guardian shared a story from one Millennial renter who moved six times in as many years, most recently relocating into a $900-a-week house in Drummoyne. The home was almost immediately sold by their landlords, off of which they reportedly made a $1 million profit, but left the renter without a home. She found somewhere to live in Jervis Bay but had to commute two and a half hours to work at her boat detailing business.
When the Prime Minister's summer reading list for 2024 features a book titled Making Sense of Chaos: A Better Economics for a Better World, which considers the economics of the individual, it is hard to say that things bode well for the housing market in the immediate future.
Generational Investment Approaches
The generational divide extends into the investment approaches, with Baby Boomer investment trends and Gen X investment trends differing significantly from Millennial investment trends and Gen Z investment trends. When it comes down to it, the difference lies in a contest of real estate vs. stock market, interestingly corresponding to low and high-risk aversion levels.
Baby Boomers and Gen X were able to afford property, with Baby Boomers especially benefitting from a rise in property prices in the 1980s and '90s following their initial investments. Gen X has made up the difference with various equities and is considered to be balanced investors for the most part. These generations prioritize investments with low to moderate risk—largely because they can afford to. In February of 2023, it was reported that more than two in five Australians noticed a fall in disposable income, likely having something to do with rising rent prices.
Millennials and Gen Z struggle to afford property at all, and while Gen Z might not be expected to own a property outright soon, rent prices make living in a home much more difficult. Both of these generations have turned to stock market investments and ETFs over attempting to invest in real estate, with Gen Z also speculating on cryptocurrencies. Millennial investment trends and Gen Z investment trends are high-risk, but the prohibitive costs of the housing market leave little else to try.
Possible Overvaluation of the Housing Market
According to Morningstar personal finance opinion writer and assistant editor James Gruber, housing is overvalued by over 40%.
"I'm going to suggest that valuations do matter, and they're little mentioned because housing remains ludicrously priced," Gruber wrote. "Up to 40% overpriced in my estimate. And that housing here is far more expensive than the 'Magnificent Seven' US tech stocks, which are richly valued yet have infinitely better growth prospects. I'll also argue there are very high odds that returns from the ASX will handily beat those from residential property over the next 10 and 20 years."
Millennials and Gen Z Favor the Stock Market
The apparent overvaluation of the Australian housing market has led many to assume one of two things: either that a crash is imminent or that investing in property will just be too expensive. Both opinions suggest that investing in the stock market now is a better option than waiting around until you are able to afford property. When considering an investment in real estate vs. the stock market, Millennials and Gen Z have seemingly concluded that the stock market has the potential to propel their purchasing power far enough that they could eventually afford a place to live.
Essentially, stock investments and micro-investments are much more reasonable purchases than buying a house outright, especially when the value of the housing market has come into question. When it comes to real estate vs. the stock market, Millennials and Gen Z can reasonably put a small amount of their weekly earnings toward stock investments, but incremental investments in a property are not exactly reasonable. For the same reason, Gen Z can make small investments in cryptocurrency and other digital assets while not necessarily being able to afford property payments.
Noting the "Rent-Vesting" Trend
It should be noted that some young Australians have worked to "beat" the property market with a trend referred to as "rent-vesting." Property investment has not lost its appeal for the young Australian; the concern is with the state of the market and their opportunity. As such, those who can afford a $100,000 to $150,000 house in a smaller market have been buying and renting these properties while living in the places where they prefer to live. They can't afford to buy a home where they want to live, so they just buy a house elsewhere and put the rent toward living where they want to.
Focusing on Sectors Poised for Future Growth
That said, young investors generally focus their attention on stock investments. Their investments are particularly focused on sectors like technology and renewable energy, both of which are investments in the future rather than the promise of an immediate return. Tech companies are certainly valuable, but renewable energy companies are reliant on policy changes and a general societal shift toward climate awareness.
These Millennial and Gen Z investment trends seem to reflect that younger investors are more interested in sectors that promise rapid future growth rather than stable, low-risk growth opportunities.
The Australian Securities Exchange (ASX) demonstrates this with a trend toward investments in tech stocks, which are increasingly perceived as upward investments. Tech companies sell products that are essential to modern society, something which is acknowledged more fully by Millennial investment trends and Gen Z investment trends than those of other generations.
Young Investors May Continue Prioritizing Stocks to Find Success
So long as the Australian property market continues to be unaffordable for young Australians, Millennial investment trends and Gen Z investment trends will likely continue to weigh the value of real estate vs. stock market investment and conclude that the stock market has a better chance of moving their financial station forward. If generational trends are anything to go by, Gen Alpha may invest more heavily in digital assets than Gen Z while having an even higher tolerance for risk.
