The stay-at-home generation: More young Australians are living with their parents for longer
Housing affordability, higher rates of tertiary study and delayed marriage are likely drivers
2 min
A rising number of young Australians are remaining in the family home after finishing school, as economic and social factors drive them to delay independent living, according to new research. And they’re staying longer, with a marked increase in 20-somethings still living at home over the past two decades.
Just over 54 percent of young men and 47 percent of young women aged between 18 and 29 years are still living in the family home, according to the 18th annual report for the longitudinal Household, Income and Labour Dynamics in Australia (HILDA) Survey. The survey tracks the lives of 17,000 Australians and reports each year on various aspects of life, including health and education, household and family relationships, and income and work. The latest HILDA data was collected in 2021 during the pandemic.
HILDA Survey Co-Director, Professor Roger Wilkins from Melbourne University, said the trend of more young people remaining in the family home began in the early 2000s. He attributes it to a variety of social and economic elements.
“We’ve seen a rise in higher education participation, declining full-time employment opportunities for young people, a rising cost in housing, and a trend towards later marriage and family formation,” he said.
Over the past 20 years, the prevalence of young people living with their parents has been highest among those aged 18 to 21 years, which is unsurprising given these are the first few years of post-school adulthood when many young people are studying and unable to work full time. However, the data also shows that young people are living with mum and dad for longer periods — and well into their 20s.
Among 18 to 29-year-olds, the age category that has seen the most growth in young men living at home is 22 to 25 years. It’s up 12 percent from 42.1 percent in 2001 to 54.1 percent in 2021. Among women, the age category with the highest growth is 18 to 21 years, up 17.6 percent from 61.9 percent in 2001 to 79.5 percent in 2021. The age category with the second highest growth rate for both men and women is 26 to 29 years, up 9.9 percent for men and 11.6 percent for women since 2001.
Professor of Sociology and Social Policy at Melbourne University, Lyn Craig, said the trend has broad macroeconomic implications for Australia. “Since the mid-20-teens, fertility has fallen below replacement in Australia for the first time and I think that has something to do with the price of housing and young people not being able to afford to establish an independent household away from parents,” she said.
During the early 2000s when this trend began, the Australian housing market was in a boom and buying was difficult for young people to afford. Today, simply renting has become hard to afford, particularly following a 40 percent surge in rents nationally since the pandemic began.
While some young people are constrained by economic factors, others are likely delaying independence by choice, Professor Wilkins said.
“Some young people would like to start their adulthood journey and to have their own home but Australia’s economic conditions aren’t allowing that. On the positive side, as a richer society with longer life expectancy, perhaps some young people are making a rational and conscious choice to delay getting into the hard yakka of life. They decide to enjoy themselves and have some fun while they are still young.”
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Rising Australian bond yields are putting pressure on listed property and the cost of capital. Here’s why A-REITs can signal changes in property valuations before the direct market moves.
4 min
Most property investors spend considerably more time watching interest rates than bond markets.
That makes sense. The Reserve Bank cash rate has an obvious relationship with mortgage repayments, borrowing capacity and investor sentiment, while government bonds can seem far removed from what someone will pay for an apartment in Sydney or an office building in Melbourne.
But the bond market can provide one of the earliest indications that the price investors are willing to pay for property is changing.
That became evident last Thursday, when Australian shares suffered their worst trading session in months. The S&P/ASX 200 fell almost two per cent, with property among the rate-sensitive sectors caught in the sell-off as government bond yields moved sharply higher.
Australia’s 10-year government bond yield pushed to around 5.4 per cent, close to its highest level in 15 years, against a backdrop of rising global yields and renewed concern about inflation and the direction of interest rates.
For property investors, that matters because the government bond yield is effectively one of the reference prices for money.
An investor buying an Australian government bond is receiving a return while taking comparatively little credit risk. Property comes with tenants, vacancies, maintenance, leasing costs, illiquidity and the possibility that the underlying asset falls in value, so investors generally expect to be compensated for accepting those additional risks.
A property yielding five per cent therefore looks considerably more attractive when a 10-year government bond yields three per cent than when that same bond is yielding more than five per cent.
That does not mean property values automatically fall every time bond yields increase. Rental growth, scarcity, lease structures and the quality of an asset can all outweigh movements in rates, but it changes the return investors require and therefore what they may be prepared to pay.
SG Hiscock & Company made that point in an ASX Investor Update, arguing that real, or inflation-adjusted, bond yields can be particularly relevant to property because real estate is fundamentally a long-duration investment whose value is derived from future income.
The first place investors can often see that repricing is the sharemarket.
A house or commercial building does not have a price that changes every few seconds. An Australian real estate investment trust does.
A-REITs can own billions of dollars of shopping centres, offices, warehouses and other property, but their securities trade continuously on the ASX. When expectations around interest rates and bond yields change, investors can immediately alter what they are willing to pay for those property earnings.
That can create a situation where the value attributed to a portfolio on the sharemarket falls even though the underlying buildings have not changed hands and their independent valuations remain unchanged.
The two markets simply move at different speeds.
Mark Ferguson, Head of Charter Hall Maxim Property Securities, has previously described direct property valuations as lagging the listed market. Writing for Charter Hall during an earlier period of rising interest rates and bond yields, Ferguson noted that listed property was already pricing increases in capitalisation rates and falls in underlying property values before those adjustments had fully emerged in direct-market valuations.
The effect can be substantial.
Consider a commercial property producing $1 million a year in net operating income. At a five per cent capitalisation rate, that income implies a value of $20 million.
If investors subsequently require a 5.5 per cent return while the property’s income remains unchanged, the implied value falls to around $18.18 million. At six per cent, it falls again to roughly $16.67 million.
Nothing necessarily happened to the building. It could have the same tenant paying the same rent under the same lease. What changed was the return required by the person buying it.
That is also why income growth becomes so important.
A well-located property with constrained supply and strong rental growth can increase its earnings quickly enough to absorb some of the pressure from higher required returns. An ageing office building facing vacancies, refurbishment costs and an approaching debt refinancing could instead be hit from several directions at once.
Debt adds another dimension because property is one of the economy’s most capital-intensive asset classes.
Higher market rates can increase the cost of financing an acquisition or refinancing existing debt while simultaneously increasing the return investors expect from the property itself. For developers, the consequences can be even more pronounced because higher construction finance costs can coincide with lower anticipated end values.
If that happens, a project can be squeezed from both directions: it becomes more expensive to deliver at precisely the time investors become less willing to pay yesterday’s price for the finished asset.
The direct property market generally takes longer to reveal that adjustment.
An A-REIT can lose five per cent of its market value in a trading session. An office building may not transact for another year. Owners can reject lower offers, transactions can be withdrawn and valuers must wait for comparable sales to establish new evidence.
That lag is one reason listed property can be useful even for investors who have no intention of buying a REIT.
The same principle eventually extends to residential property, although houses and apartments are generally valued using comparable sales rather than capitalisation rates.
Residential property is particularly sensitive to credit. Higher bond and swap rates can influence bank funding and fixed mortgage pricing, while higher borrowing costs reduce the amount households can service.
If prospective buyers can borrow less, the number of people capable of paying yesterday’s price can shrink. Vendors may initially resist that adjustment, resulting in fewer transactions rather than immediate price falls, before motivated sales eventually establish new comparable values.
For investors, rental growth can provide an important buffer. Rising rents can help offset higher financing costs, just as increasing commercial rents can compensate for some expansion in capitalisation rates. Investors relying primarily on capital growth while accepting a low rental yield have considerably less protection when the cost of money rises.
That is why movements in listed property and bond markets deserve attention beyond the trading floor.
They provide a constantly updating view of how investors are pricing interest rates, debt, future income and property risk, often months before those changes become obvious in direct transactions.
For an A-REIT investor, that means looking at gearing, debt maturity, hedging, interest cover and the discount or premium to net tangible assets rather than simply chasing the highest distribution yield.
For a commercial property investor, it means testing what happens to valuations if capitalisation rates move 25, 50 or 100 basis points higher.
For residential investors, it means understanding mortgage costs, borrowing capacity, realistic rental income and how much of the investment case relies on future capital growth.
The cash rate will continue to attract most of the attention in Australian property. But investors looking for an earlier indication of how the market is repricing risk should also be watching the bond market.
Property prices might take months to respond to a changing financial environment. The price of money moves considerably faster.
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