SA Affordable Housing March - April 2020 // ISSUE: 81 | Page 5

EDITOR'S NOTE Is renting really ‘dead money’? i to B uying one’s own home is an aspirational pursuit, governed by the fact that home ownership is widely seen as a central pillar of wealth accumulation. However, fed-up millennials increasingly fear they may never be able to save enough money to buy a home, leaving an entire generation disenfranchised by the property market. An ongoing housing affordability crisis is entrenching a generation dependent on parents to help them to get a foot on the property ladder, with a growing number of millennials giving up hope of moving out of home by age 30. Even though millennials in South Africa are reported to be purchasing homes in great numbers in recent years – according to statistics supplied by property group Lightstone, almost 330 000 millennials bought homes in South Africa between 2015 and 2017 and 70% of them were first-time homebuyers – the reality is that as a proportion of the millennial category of people aged 22 to 37, it is a declining percentage. Although the great South African dream of home ownership burns brightly, rent may be no more ‘dead money’ than paying interest on a mortgage. Researchers at EY in Australia recently set out to explore whether it is time we changed the narrative around rent versus buy, based on data from the past two decades. Its report revealed that many people could be better off renting permanently than buying. In the model, two home seekers were given the same starting capital. One invested in home ownership, with the other renting a similar house in the same location while also purchasing an index fund. The performance of their combined housing and investment choices over time were then compared. It revealed that the renters that maintained a leveraged investment in a suitable index fund were better off than those who owed a property in the same area. “Rent is no more ‘dead money' www.saaffordablehousing.co.za r than paying interest on a mortgage. We need a strong new narrative about different ways for people to generate wealth while consuming housing as a product, not an investment, the report concluded. Whether home ownership or renting is the better path forward ultimately depends on future rent and house price movements, which are impossible to predict. In South Africa too, bank interest rates are significantly higher than in countries such as Australia. Home ownership matters because it had been built into many aspects of South African life. Much public policy assumes that most people will own their own home, especially affecting access to finance. Homeowners also tend to save more and build wealth, although it's difficult to determine whether this is because taking on a mortgage imposes an external savings discipline, or because households with better savings discipline are more likely to buy their home. Traditionally, the belief is that people rent because they can't afford to buy where they want to live. The way for consumers to turn buying their first home into a good financial as well as aspirational decision, is to follow the following common-sense tips: • The bigger your deposit, the smaller the capital amount you will need to borrow from the bank, which will have a major effect on the monthly mortgage bond repayment. • If you can afford it, pay extra capital amounts and/or extra funds into your monthly mortgage bond, over and above the required minimum amount. This has a major impact on shortening the period of the bond and paying less interest to the bank. • Shop around and look for properties in different areas, including areas which are undergoing a revival. Eamonn [email protected] MARCH - APRIL 2020 3