I was recently flying back on a REX commercial prop plane from the regional town of Mt Gambier (close to the boarder of South Australia) after visiting some of our clients.
Due to this being a small aircraft, the approach into the airport was very low and I was able to obtain a great view of the land estates surrounding the airports. I was particularly surprised to see that the house blocks consisted of a house on the entire block and no back yard. It occurred to me that it now seems that the days of the large back yard is becoming extinct and the kids are now inside in the cinema room rather than playing in the backyard on warm summer afternoons. How times have changed!
In meetings I am often asked “How can I help my kids get a deposit together so they can buy a home?”or “How are my kids ever going to afford a home in the future?”
When I consider these questions my logical part of my brain says this is insane…we have a population of 23 million with a land mass of 7.6 million square km. Australia globally is the 6th largest country and if we take a practical look at our country most of it is empty.
You only have to fly say 8-10 hours to Japan which has a population of 127 million on a land mass 374k square km and they manage to buy their family home and only pay around $300k for a home. How is it that we have a problem and they don’t?
There are a bunch of reasons why housing is so expensive, potentially however the biggest hurdle might be around the way we think about housing and what it means to us personally.
Now I live in Beaumaris which is about 22 km from the city centre. If I plonked my home 22km from the city centre of Tokyo would I pay the same? Using some very crude rough estimates I would probably pay at a minimum around 3 times this cost. I now have an affordability issue.
The reality is that at some point it is highly likely that we are going to be living in a smaller place in the future. The idea too that we can plonk a house on a full 500 sqm block too is probably not going to be a reality for inner city. In Japan the average sized family home is 65 sqm which is located in the inner city however we call these homes an apartment! So it is likely the affordability issue will be addressed over time with a reduction in size of the home.
So how does one address the issue of affordability today for parents? Well for young parents that have a young family they need to be thinking about this issue very early on so that it becomes incredibly easy. It is just a case of setting up an investing plan early on and over time building to this so that when the kids turn 21,25 or 30 you can simply cut them a cheque for their deposit.
The problem starts to get more complicated when the kids are now grown up and you are trying to address this problem within the next 5 years or so. The realities are this can be funded from a variety of sources but the important thing to consider is sometimes this time in your grown up children’s life can be a very vulnerable. For example with de-facto laws being the way they are today, it would not be too hard for your hard earn cash to end up in your child’s ex partners back pockets and possibly leaving your grown up child back at home and without a home.
There are ways to address and protect these deposits in these cases. For young families too there are also great ways to set up investment strategies to ensure that when your kids start looking for a home you are not too worried about how this might be funded.
Like all great financial ideas though, it is important to obtain professional Financial Planning advice before running off and implementing this personally- and we would recommend that you speak with us at AJ Financial Planning.