Real estate: Pam Walkley
Parents have to be creative as high housing costs force kids to live at home longer
Many young adults, finding it increasingly difficult to embrace the great Australian dream of home ownership, are staying put in the family home. Almost two-thirds of those living at home (62%) can’t afford to move out, while 21% of those aged 18 or over and living in the family home expect to remain with their parents until they are at least 30, according to CoreLogic’s Perception of Housing Affordability survey.
The vast majority of non-homeowners (89%) believe it’s important to own a property but 87% are concerned they can’t afford to do so, according to the survey.
With many young first-home buyers priced out of major city markets, especially Sydney and Melbourne, helping their kids is high on the agenda of many parents.
Many have given up expecting much help from governments, with the federal government doing little to tackle the problem in the 2017 budget despite a lot of talk beforehand. And the jury is still out on the effects of Victorian and NSW measures to cut stamp duty on properties priced less than $600,000 and $650,000 respectively.
Some parents are able to help their kids financially but not all can. And even then kids need somewhere to stay while they’re saving at least part of the deposit. If they have to pay the high rentals required in many cities, it will severely curtail their ability to stash money away. Saving for a deposit is perceived to be the biggest impediment to buying a property, according to CoreLogic’s survey.
The phenomenon of kids staying at home for extended periods could see the rise of “cubby house syndrome”, where parents try to fashion some sort of independent living arrangements for their adult children on their existing premises, says Lisa Claes, CEO of CoreLogic. “Cubby house syndrome could be the reluctant compromise for young people unable to follow the traditional rite of passage of buying their own home.”
Spare spaces such as garages, rumpus rooms and studios will become the new granny flats – but for the kids instead of grannies. Home extensions can also be a possibility and innovative architects will be looking at the construction of multi-generational homes.
Parents who don’t want the kids at home forever can consider downsizing to release funds to help them into their first home.
Some were given an incentive in the 2017 budget: a couple aged 65-plus who sell the home they have lived in for at least 10 years will be able to make a non-concessional contribution of up to $300,000 into their super from the proceeds of the sale.
Some of the funds released could also go to helping the kids. One of the most popular ways is to gift your children money towards a deposit or cover the entire deposit. A disadvantage is that it’s not easy to get the money back if you need it later. And if your child splits with their partner, some of your gift will end up in the ex’s pocket.
If you structure this as a loan it gives you more protection. You can do this through an unregistered loan secured by the property and specify the amount lent, the interest rate and the repayment date, which can be rolled over.
You can also specify, if there is a breakup, that the property is sold, your loan is repaid and each partner gets back their share of the deposit before the remainder of the proceeds are split between them. This protects you and your child, especially if they paid more of the deposit.
And, if you wish, your wills can include a clause forgiving the loan on death.