Apartments more ‘fair value’ than houses

Australia’s homes are among the most expensive in the world — ranked second in price globally — and the question many are asking is: are they really worth it? 

According to AMP chief economist Shane Oliver, house prices in our capital cities are around 30% above what he considers ‘fair value’. 

Units, he says, are more reasonably priced, sitting just 1% above fair value, as reported by Sydney Morning Herald.

Oliver’s assessment is based on price-to-rent ratios, measured against long-term historical averages. This gives him a benchmark for fair value — essentially, what prices would need to be for housing to be considered reasonably affordable.

“House prices have to come down a lot to bring them back to more affordable levels — or in this case, back to fair value,” Oliver says.

That’s a sobering thought. But with the property market already so unaffordable, it’s no surprise the Australian Financial Review is calling attention to a new trend: stayvesting.

From Rentvesting to Stayvesting

First, there was rentvesting: renting in a desirable location while investing in a more affordable property elsewhere. Now, stayvesting takes it a step further — buying an investment property while continuing to live at home with parents.

It’s a strategy made for the current climate. House prices are still climbing, and about 55% of household wealth tied up in residential property according to economic futurist Evan Lucas. For people over 50, Lucas says that property as a percentage of household wealth jumps up to 80%.

Living at home rent-free gives younger adults a rare advantage in this new world property order. Stayvestors can avoid high rental costs while using their savings and income to start building equity in the property market.

With 54% of young men and 47% of young women aged 18 to 29 years old still living under the same roof as their parents, that’s a lot of potential stayvestors. And given it now takes around 13 times household income to buy Australian property, any edge matters. 

But not everyone agrees with Oliver’s contention that property prices will fall back to ‘fair value’. 

Lucas says that a 30–41% drop in Sydney home values would be catastrophic.

“If your property value fell by a third, your household economics would completely upend themselves,” he warns. “You’d stop spending and find yourself in mortgage jail.” In other words, he’s not buying any notion that prices will fall.

The Rise of The Two-Bedder

According to the Real Estate Institute of Australia (REIA), two-bedroom dwellings are now outperforming traditional houses in both price and rent growth. That’s likely because they offer the most accessible entry point in an unaffordable market. 

But there’d be little room for the stayvestor category to grow if we all move into little two-bedders.  

Data from the 2021 Census showed 456,500 people aged 25–34 still lived with their parents, up nearly 17% since 2016. Most parents are fine with it. They enjoy the company, stay connected, and avoid any ‘empty nest’ syndrome.

Here at Flat Chat, we think there may be a better name to describe ‘stayvesting’.

Perhaps ROOMIES  — Relatives Offering Open-minded, Meaningful Intergenerational Equity Support  — or potentially PILLOWS — Parents In Lifelong Love Offering Warm Shelter — could catch on.

Share your thoughts: Is stayvesting modern-day common sense or another symptom of a broken housing market?