I thought kids stopped screaming and being blindingly selfish when they turned 3 or maybe 4. I was wrong. It could be that 30 is the new 3.
Having witnessed, first hand, some of the froth and bubble surrounding the issue of consumption patterns of millennials, that they prefer spending money on lattes and smashed avocado on toast rather than a dwelling, there is an irrational, self centered discussion that blames anyone and everyone for their inability to get into the housing market.
If Twitter and some of media articles are anything to go by, a bevvy of millennials have explicitly expressed their overwhelming desire to spend their money on avocado, ubers, the latest phones and travel rather than saving to buy a house. I have noted, ad nauseam, that this is fair enough – it’s their money, spending it whichever way floats your boat is a fundamental tenet of economics. It is all part of that basic choice we all have about where we wish to spend our money.
Rather than leaving it there, the millennial group then unrelentingly complain about their perceived in ability to tap into the housing market. This is incongruous given they have just said they are no longer looking to buy a house. Why would anyone care about the price of a Brett Whitely painting, for example, when you aren’t looking to buy one? But the millennials are vocal about their insistence of unapologetically wanting to spend their money on lattes, pulled pork and a mascarpone pancake stack whilst still moaning about their inability to buy a house.
It’s this juxtaposition that leaves me wondering what the fuss is about.
Of course, we would all like to own a lovely house AND eat out a lot, have the latest technology and go on holidays. Even a Brett Whitely would be nice to have. Who wouldn’t want all of the above?
This is where the millennials, who are much better educated that the baby boomers (with 85 per cent finishing Year 12 versus 35 per cent of baby boomers and over 30 per cent going to university versus 2 per cent of boomers) fail to use their vastly superior academic background to analyse the issue.
No one can be sure why this is the case, but maybe this is because they will simply never compromise on spending and lifestyle choices. And fair enough if that is the choice.
“Bruch is all we’ve got” they shout of defiance.
Economics is about choice. For a given income, an individual has a vast array of choices about where to spend or save their money. For a given income, if an individual choses to spend a significant proportion of their income on, say, going to the movies, by definition, they will have less to spend on, say, clothes. Or they will have less savings. It is remarkably simple. It’s about choice and a free one at that.
By belligerently shouting out a preference of spending a share of their limited income on lattes, smashed avocados and holidays, the millennials are undermining their veracity of their claims about being squeezed out of housing. In what should be a definitive fact check on the issue, the RBA note that housing affordability now is at about the average of the last 30 years. But point that out and you are shot down with “it’s like, not affordable, like, where I live”.
Millennials do admit they cant have both, yet somehow, like the two year old with Thomas the Tank Engine and Peppa Pig’s deluxe play house who can only play with one toy at a time, their otherwise well trained minds are angry about this.
It’s Thomas or Peppa. It’s avocado and all that stands for, or a deposit for a house.
Worse still, the millennials unleash a Trump-eque fact flow which ignores all research from the RBA and data from the ABS and substitutes a hotch potch of opinion, falsities and made up ‘facts’. The house price often referred to by Millennials as they grasp at straws, is from a private sector firm that the RBA no longer relies on because the data were inaccurate. But that spoils the story because these (inaccurate) data show house prices in Sydney (it’s always Sydney and never Hobart) are about $200,000 higher than the accurate and reliable ABS house price measure.
The ABS may have stuffed up the Census but its house price data are sound. What’s more, for ones so worldly, the Millennials seem unaware that they don’t need a 20 per cent deposit to tap into the housing market. As the RBA noted in its comprehensive report on housing affordability last year:
“The maximum loan-to-valuation ratio (LVR) available in the Australian mortgage market has increased noticeably over recent decades, from the 80 per cent typical in the pre-deregulation period [the mid 1980s] to around 95 per cent at present.”
The RBA added:
“Equivalently, the deposit required of a first home buyer is no longer necessarily around 20 per cent of the purchase price, but rather, more often in the 5–10 per cent range. This shift would have eased the accessibility constraint imposed by the deposit requirement”
As a result, the juvenile calculations that a Sydney house is worth 5,000 smashed avocado breakfasts or 20,000 lattes is based on the wrong house price and the wrong deposit.
When this is pointed out, the Trump-esque fact barrage swings into Trump-esque abuse with “death to boomers” and “f*cking idiot” not uncommon refrains.
The end point of all this is that people, young or old, can spend their income which ever way they want. If the boomers ate baked beans, drank international roast coffee and holidayed in a cockroach infested caravan on the beach while they struggled to enter the housing market, good on them!
Just as if todays millennials want to spend their hard earned income on lattes, backpacking in South America, craft beer and technology – good on them too!
Rather than chucking a tantrum about not being able to have everything, millennials might be well advised to chill a little, enjoy a boutique gin and tonic, enjoy that truffle infused pork belly at the latest pop up restaurant and be happy doing so. Just don’t whine about not being able to buy a house as scarce income is spent elsewhere.
Economics worked 40 years ago. It still does.
Stephen Koukoulas is a Yahoo7 Finance expert with more than 25 years experience as an economist in government, as Global Head of economic and market research, as Chief Economist for two major banks and as economic advisor to the Prime Minister of Australia.