The average UK resident spends around £66,800 (about $80,000) during their 20s on renting. Young people the world over are losing money in their first decade as independent adults trapped in a spiral over renting vs. buying vs. affordability.
The average rent is rising faster than the average mortgage repayment, but after the financial crisis of 2007-08, the average deposit is too large to save for; especially if you are renting. Rising rents make it next to impossible to put money aside to buy a home without parental involvement – either by living with the parents to save money, them passing away and gifting a deposit via inheritance, or them directly helping with the deposit.
Not all families can afford to do that, and so tens of thousands of dollars are wasted on rents as people get older and feel more helpless in the pursuit of the homeownership dream.
One Generation’s Advantage is Another’s Pain
Never has there been such a stark difference in the buying power of two generations. Companies, funds, real estate developers and retirees have ploughed money into the rental market to snap up cheap properties and turn them into investments for the future.
They are largely able to do this because of two factors. The first is relatively stable and lucrative careers built over decades with strong pension funds. The second is having had much better buying power in their 20s and 30s in terms of property costs, deposit percentages, and mortgage offerings.
Furthermore, tax breaks combined with gold plated retiree benefits means many are able to invest in properties having paid off their own mortgages, and turn further profit from renting them out to younger people.
For people in their 20s and 30s, being a proper adult means having the resources to cover 6 months money without a job, and to have enough money for a deposit on a house. Rents are currently averaging 40% of wages and this is before local or state taxes (if they exist), fees, utility bills and Internet access costs.
This has combined with an increase in the average deposit requirement, the rise in cost of products and services compared to wage rises, worse mortgage terms, and stagnating housing markets which push average prices up. The true cost of this situation varies from country to country. In Germany for example, rents are lower and home buying is less of a priority, whereas in the UK, the situation is close to breaking point for all but the richest of young adults.
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Solutions for Young People to Consider
Often these problems are compounded by rogue lettings agents and realtors looking for a quick buck by tacking on non-refundable admin fees. However, the solution for dealing with these fees is a microcosm for how young adults can respond to the climate they find themselves in.
Shop around, promote those with the smaller fees or if possible, zero fees. This is a market and the market responds to demands, negotiate, barter, and be prepared to walk away. Rogue landlords and agents profit from giving people the sense that there is no alternative but this, but that is not true.
A second solution many young adults are turning to is building their own homes. Sometimes this is legally and sometimes illegally. Others are turning to micro homes or small homes little bigger than garden sheds. These are either placed in rural areas or in fields near towns and cities, or in allocated plots.
Others are pulled along on the back of cars between places. Going off grid and building a new home is significantly cheaper than renting or buying an established property. It is possible to require smaller amounts of money to build a home on a plot of land than to buy an established property.
From sharing to co-buying, sub-letting, side-hacks, restoring derelict properties or building micro-homes, today’s 20 year olds are innovative and in touch with ideas the world over. They can also stand up and change the market.