Do we always have to pay the rent

Do we always have to pay the rent

When I was growing up through the 1970s the only financial advice that stuck with me was the rule of thirds on what to do with income. It was to allocate one third on rent, one third to spending for everyday living, and a third saved.

Oh, how naive; how quaint.

Today rents in England account for half of the tenants’ take-home pay if you are lucky enough to live outside London. In the big smoke expect the proportion to be 75%. 

The rent just ate the savings.

And for today’s younger renters there is no bailout from inheritance despite the apparent wealth of the baby boomers. The typical inheritance age in the UK is somewhere around 60, and the median amount handed down is about £11,000.

Not surprisingly the youth are not happy.

The Institute for Economic Affairs (IEA) in the UK, was brave enough to publish numbers that suggest 80% of youngsters blame capitalism for the housing crisis, 75% believe the climate emergency is “specifically a capitalist problem” and 72% back sweeping nationalisation. 

Worst statistic of all for a right-wing think tank—67% of youngsters want to live under a socialist economic system.

It’s a similar story in the US. 

A Harvard University study in 2016 found that more than 50% of young people reject capitalism, while a 2018 Gallup poll found that 45% of young Americans saw capitalism favourably, down from 68% in 2010.

So much for the libertarian land of opportunity. 

And so much for the trickle-down.

The numbers for youngsters do not add up anymore. 

At the end of 2021 in Sydney, the average house was selling for $1.36 million and units for $837,000 with a typical Sydney house about $340,000 more expensive than it was at the end of 2020. 

Take a deep breath for this statistic—the rise in value in a year matches the full cost of a house just 25 years ago.

Image modified from photo by Maximillian Conacher on Unsplash

Who can afford the mortgage?

Borrow the money to purchase one of these $1.3 million houses to avoid paying rent and you will need $65,000 on the minimum 5% deposit and expect to pay back the bank $4,500 a month for 30 years.

Total repayments of 1.62 million at $54,000 per year in after-tax dollars. 

The average salary of an Australian in 2021 was around A$99,600 per year with a wide range starting around A$33,000 and a median salary of A$72,000.

Assuming an approximate tax burden of 25%, a single person on $72,000 could pay the mortgage but would have zero dollars left for any of the other bills life throws their way.

Clearly, this is not sustainable.

Rather than do what most of us baby boomers would do and lament the loss of the picket fence and the Sundays spent painting it white, how about a reboot.

What if ownership was not the only route to the long-term security of house and home?

What if we invented new social norms that not only promoted rents but removed the landlord. Let’s take rent-seeking out of the equation and have society build the housing stock at cost, then rent that stock to individuals in the community at rates that reflect recovery of those costs and perhaps a modest return linked to the bank rate.

You know, the sort of thing a sovereign wealth fund could handle.

Just thinking.

Why the baby boomers had it good

Why the baby boomers had it good

Photo by Esther Ann on Unsplash

I was born in 1961 as one of the last Baby Boomers, the demographic cohort that came about from a spurt of fertility following WW2. 

The world of the 1960s was very different to today. 

There were far fewer people for starters, technology had not reached everyone, there was no internet, no streaming, and a long-distance phone call cost over $1 a minute. There was also no Covid.

My grandma bathed her children in a tin tub in front of a coal fire. I always had access to instant hot water. 

My father bought his first car, a third hand Austin A40 the size of a peanut when he was in his 40’s. I am lucky enough to buy a new car with a turbocharged engine and big enough for five adults.

Image source: Morse Classics

Personal computers, mobile phones, the internet, global travel, gastronomic delights, and Netflix have arrived in the lifetime of the Baby Boomers. So many things have changed over the last 60 years that my infant self would never have imagined my future. 

I have experienced so much that I need to pinch myself to be sure it all happened.

Cmglee, CC BY-SA 4.0 via Wikimedia Commons

The Alpha generation 

What of the babies born today, the Alpha generation? What will they experience in their lifetimes?

If the Boomers went from landlines to Facetime, maybe the Alphas can expect holograms, space travel for the masses, and bionic body parts. They could also have to pinch their virtual selves.

Only they will have more to do than the Boomers.

We know that their generation must solve many problems made from the successes of the previous generations. They will be faced with issues of food security, water security, wealth discrepancies, refugees, and any number of technology transitions, especially with energy. 

Oh yes, and Covid or its derivatives. 

They will also be impacted by changes to the climate.

Here are some of the numbers based on a warming scenario should we meet the Paris agreement targets and see a global average of 2.7℃ of extra heat

This is a lot of extra disasters.

The WHO describes heatwaves as the most dangerous of natural hazards. From 1998-2017, more than 166 000 people died due to heatwaves, including more than 70 000 who died during the 2003 heatwave in Europe.

The Alpha generation can expect over 600,000 heatwave related deaths every decade.

A golden age

The Boomers parents and grandparents did it tough too — nobody goes through a global war unscathed.

So I am lucky to be born a Boomer and forever grateful.

However, my generation has done a lousy job of preparing for the future. We have not curtailed population or consumption but promoted both. Nature has buckled under our excesses, and the natural resources we leave for the Alphas are either depleted or dangerous to use.

The Baby Boomers had it good because we were born at just the right time, the golden age of technology and wealth. We tapped the sun’s ancient energy for a cheap fix and a costly legacy.

It will take a lot to make a platinum age from what we will leave behind.


Feel free to browse the Alloporus back catalogue for more ideas and random thoughts.