Buying ASX shares, rentvesting and co-ownership: How young Australians are achieving home ownership

First home buyers 'are becoming more ruthless with their goals', says Westpac loans manager.

| More on:
A couple talks with a real estate agent in a unit, representing the Lifestyle Communities share price today

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investing in ASX shares to build a deposit, rentvesting, and co-owning with parents or partners are among the inventive ways that young Australians are gaining a foothold on the property ladder.

Research from Westpac shows that 56% of first-time home buyers are planning to buy with a partner, compared to 40% three years ago.

Three in four young buyers say they are willing to compromise on location, up 9% from three years ago.

One in two first-time home buyers is considering rentvesting instead of owner-occupation, whereby they buy an affordable property to lease out and rent a home for themselves wherever they want to live.

Westpac managing director of mortgages Damien MacRae said first home buyers "are becoming more ruthless with their goals".

McRae said:

They understand it's a big task, but they are determined to break into the market and are willing to compromise to get there.

Creative pathways to home ownership

It's little wonder young people are compromising or getting creative to help them buy a home sooner.

For some, it feels like an impossible dream, particularly when it now takes 11.1 years to save a deposit for a typical house and 8.5 years for an apartment, according to an ANZ/CoreLogic affordability report.

It also takes 52.7% of a person's income to service an average home loan for houses and 40.5% for apartments, which is well above the mortgage stress threshold of 30%.

Co-ownership with partners or parents

In addition to buying with partners, many first home buyers are accepting various kinds of help from the Bank of Mum and Dad, including co-ownership.

Australian parents are acutely aware of the challenges of housing affordability for their children today.

In fact, a recent survey showed three in four Australians are planning to leave some of their superannuation behind as an inheritance for their loved ones.

One of the reasons is to help their kids into home ownership, as one respondent explained:

The cost of buying a house is beyond reach for younger people now. A little help from me when I die might help pay off their mortgage and allow them to retire at an appropriate age.

A separate investor survey shows helping their children or other family members financially is a key motivation for 33% of Gen Xers and 25% of baby boomers.

Investing in ASX shares to save the deposit

Saving a home deposit is a significant motivation for investing in ASX shares.

The 2023 ASX Australian Investor Study, which surveyed more than 5,500 Australians, found that buying a home to live in was the main goal of 16% of investors and 31% of intending investors.

An Australian Housing and Urban Research Institute (AHURI) study confirms the trend:

Anecdotally, some people have been turning to other strategies to accumulate wealth to achieve home ownership, including share investing and property investing.

The study found ASX shares were the most popular type of stock among young investors, with ASX exchange-traded funds (ETFs) coming in second.

By the way, online brokerage platform Selfwealth Ltd (ASX: SWF) reports the most popular ASX shares traded in April were BHP Group Ltd (ASX: BHP) and Woodside Energy Group Ltd (ASX: WDS).

The top ASX ETFs traded were Vanguard Australian Shares Index ETF (ASX: VAS) and Vanguard MSCI Index International Shares ETF (ASX: VGS).

Rentvesting

Rentvestors typically purchase their first property in an affordable suburb on the city outskirts and then lease it out, using the rental income to help them pay the holding costs and mortgage.

Meanwhile, they rent a home for themselves in a trendy inner-city location that provides the lifestyle they want.

They hope their investment property will deliver enough capital growth to fund the deposit on a home in a location they want to live in later down the track when they 'settle down'.

Rentvesting is a forced choice for some first-time buyers as it's the only way they can get finance.

It can be easier to get an investment loan than an owner-occupier loan because the rental income forms part of the banks' serviceability and income assessments.

The Australian Bureau of Statistics (ABS) began tracking rentvesting in 2019. Last year, 7,412 first-time buyers took our investment loans, according to ABS lending finance data.

Buying a first home with government help

Thousands of first home buyers are also taking up government help to buy their first residence.

Since May 2022, more than 110,000 Australians have taken advantage of the First Home Guarantee Scheme, which allows them to buy with a 5% deposit and avoid lenders' mortgage insurance.

The Federal Government is currently trying to get its new Help to Buy equity scheme through Parliament.

It says Help to Buy would allow 40,000 buyers to purchase a first home via a shared equity arrangement.

The government would provide up to 40% of the purchase price of new homes and 30% of the price of established homes.

The states and territories also offer help for first home buyers, including stamp duty exemptions and concessions and grants.

In November 2023, Queensland doubled its First Home Owner Grant to $30,000 for people buying or building a new home under $750,000 until 30 June 2025.

Motley Fool contributor Bronwyn Allen has positions in Anz Group, BHP Group, Vanguard Australian Shares Index ETF, and Woodside Energy Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

Calculator and gold bars on Australian dollars, symbolising dividends.
How to invest

How to turn your savings account into a gold mine starting with $10,000

Here's why shares could be superior to savings accounts.

Read more »

A young well-dressed couple at a luxury resort celebrate successful life choices.
How to invest

3 winning tips both Warren Buffett and Peter Lynch recommend

Let's learn from investing gurus of our time.

Read more »

A young well-dressed couple at a luxury resort celebrate successful life choices.
Share Market News

With nothing in my savings account, I'd use Warren Buffett's golden rule to build wealth

Here's how you could grow your wealth by following the Oracle of Omaha's golden rule.

Read more »

three businessmen high five each other outside an office building with graphic images of graphs and metrics superimposed on the shot.
How to invest

3 pieces of investment advice from Peter Lynch

Want to invest like a pro? Here are three valuable lessons from legendary American investor Peter Lynch.

Read more »

Invest written on a notepad with Australian dollar notes and piggybank.
How to invest

3 lower-risk ASX shares for beginner investors

I would happily recommend these three shares to a beginner today.

Read more »

A grey-haired mature-aged man with glasses stands in front of a blackboard filled with mathematical workings as he holds a pad of paper in one hand and a pen in the other and stands smiling at the camera.
How to invest

3 lessons my seven-bagger ASX 200 stock has taught me

Three valuable lessons from investing in one of the highest-quality companies on the ASX.

Read more »

a small boy dressed in a bow tie and britches looks up from a pile of books with a book laid in front of him on a desk and an abacus on the other side, as though he is an accountant scouring books of figures.
Value Investing

3 ASX shares trading below their book values

Looking for undervalued stocks? Price-to-book values may be your guide.

Read more »

A man wearing only boardshorts stretches back on a deck chair with his arms behind his head and a hat pulled down over his face amid an idyllic beach background.
How to invest

How to earn $1,900 in passive income with just $10,000 in savings

I think the ASX offers some world beating opportunities for passive income investors.

Read more »