Introduction
The ‘Great Australian Dream’ of owning your own home is deeply entrenched in the Australian culture (AMP Financial Services 2008). Housing is of significant importance as it provides a variety of essential functions in society and a shortage of affordable housing will adversely affect society in general (Kelly et al. 2005). Houston and Sudman (1977) explain that since a home is continually consumed, housing plays an important role in determining a family’s quality of life. It is also argued that in addition to the basic need for rental accommodation, home ownership provides additional fundamental benefits.
However this dream is fast becoming out of reach for many Australians (AMP Financial Services 2008) with the rising costs of housing relative to income (AMP.NATSEM 2008). Australian housing is now the most expensive in the world (Cox & Pavletich 2008) with the changing structure of households and the rise in the number of investors offered as reasons for increasing house prices (Hulse & Burke 2008; Kelly et al. 2005; Knight & Eakin 1998). Young people are assessed as most at risk of rising house prices (AMP.NATSEM 2008) because they have the lowest incomes, while at the same time being required to pay high prices for housing due to the recent housing boom. As such young first home buyers are the most vulnerable to housing stress (AMP Financial Services 2008).
Although the rising cost of housing has a major impact on the ability of Generation Y to enter the housing market, Pleffer (2007) also suggests that they are struggling to get into the housing market for a second reason; rising housing expectations. Having grown accustomed to a high standard of accommodation provided by their baby-boomer parents, Generation Y are now demanding large well-located housing.
In light of the above commentary and following a broader literature review that is detailed in the following section, a research aim was developed to guide an exploration into Generation Y, their attitudes and expectations regarding housing and housing affordability. Specifically, that research aim was:
- To understand Generation Y’s attitudes and expectations regarding housing and the potential impact of these attitudes and expectations on perceived housing affordability.
Literature Review
Generation Y are finding it harder to get into the housing market (AMP.NATSEM 2008; Cassells & Harding 2007). There are considerably more Generation Y’s renting and a significant decline in the proportion who have bought or are purchasing their own home compared to those of the same age fifteen years ago (Cassells & Harding 2007). According to HILDA (Household, Income and Labour Dynamics in Australia) data, 94 percent of 15-29 year olds would like to own their own home by the age of 30 (Cassells & Harding 2007). However, most Generation Y’s are worried about their ability to achieve this goal (Cassells & Harding 2007). Patterson (2007) indicates that 4 out of 10 Generation Y’s believe that they will never own their own home.
Kelly et al. (2005) state that housing is of great importance as it provides a variety of essential functions in society and a shortage of affordable housing will adversely affect society in general. Houston and Sudman (1977) explain that since a home is continually consumed, housing plays an important role in determining a family’s quality of life. It is an important commodity because it is fixed in geographical space, changes hands infrequently and is a form of stored wealth (Kelly et al. 2005). The United Nations Declaration of Human Rights states that access to affordable housing is a fundamental human right (United Nations 1948). The Housing Industry Association (2003) supports this view and states that access to housing is a basic right for all Australians.
It is important to distinguish between the general access to housing and the ability to purchase a home. In addition to the basic need for rental accommodation, home ownership is argued to provide additional fundamental benefits. An owner-occupier of a property has the right to determine how the property is used, maintained, decorated and eventually disposed of. They have greater security, freedom, independence, responsibility and involvement in society (Elsinga & Hoekstra 2005). Therefore the importance of owning a home is assumed to be greater than merely having somewhere to live.
There are various ways of looking at and measuring housing affordability. Assessing housing affordability can be done by comparing housing costs to household income (Housing Industry Association Ltd 2003). Housing is deemed affordable if the costs incurred when purchasing property do not exceed 30 percent of the gross income of low-to-moderate income households (Kelly et al. 2005). Households spending more than 30 percent of their income on housing are said to be living in housing stress (Planning NSW 2002).
Measuring the ease of access or accessibility of home ownership is an alternative way to measure housing affordability (Housing Industry Association Ltd 2003). The difference between the price of a typical house and the maximum loan amount that can be repaid by a household on average household earnings is the deposit gap (Housing Industry Association Ltd 2003). Another way to gauge ownership accessibility is to compare actual incomes against the income required to repay a home loan on an average house (Housing Industry Association Ltd 2003).
Regardless of which approach is employed to assess the affordability of home ownership the overall conclusion, of the majority of studies, is that housing affordability is a significant and increasing problem. It is ‘virtually impossible’ for Generation Y to buy a home according to the HIA (Housing Industry Association Ltd 2008a). Kelly et al. (2005, p. 5) note that ‘first home buyers and those on relatively low incomes appear to be most affected by deceasing housing affordability and are finding it harder to enter the housing market’. Kelly et al. (2005) go on to suggest that the significant displacement of low income earners is arguably occurring as a result of the growth in the number of investors entering the housing market. A study by Swinburne University of Technology confirms this observation presenting research that indicate investment property activities drive up prices and displaces first home buyers (Hulse & Burke 2008).
The changing structure of households is also impacting on the affordability of housing. Declining occupancy rates due to delays in marriage and starting a family, population growth, and an aging population are reducing the size of households and increasing the number of households driving the strong demand for housing (Kelly et al. 2005; Knight & Eakin 1998). For Generation Y there is also a huge decrease in the number of couples compared with the same age group fifteen years ago (Cassells & Harding 2007). This is notable as those in couple households are in a better financial position to buy and pay off a home as both members are likely to be working full time (Cassells & Harding 2007).
Australian housing is now the most expensive in the world (Cox & Pavletich 2008). Mortgage payments now account for 30.7 percent of the average first home buyer’s income and according to the HIA, housing affordability is at its lowest level in more than twenty years (ABC Online 2007). Jeffree (2006) proposes that for many young Australian families the only way to afford a home is for both parents to work full time and put their children in care. Also the median first home price in June 2008 was $424,700 up from $388,200 just two years prior (Housing Industry Association Ltd 2008).
Although the rising cost of housing has a major impact on the ability of Generation Y to enter the housing market, Pleffer (2007) suggests that they are struggling to get into the housing market for a second reason: rising housing expectations. Generation Y has grown accustomed to a high standard of accommodation and is now demanding well-located housing that is spacious and affordable (Pleffer 2007). Since 1970 the average Australian house has more than doubled in size while the average block of land has been halved (Pleffer 2007). Accordingly, it is proposed that although the rising cost of housing is shutting many low-income and first home buyers out of the market, this is being fuelled by a generation who expect everything they own to be the latest and most expensive model.
Through widespread review of the literature it was identified that although extensive research has been conducted into Generation Y there has been very little research into Generation Y and housing, despite the significance of their current life stage. It is therefore proposed that there is a gap in the literature justifying the following research question: RQ1: what are the attitudes and expectations of Generation Y towards home ownership and housing?
In addition to the above discussion the literature review set out to look at the expectations of Generation Y towards purchasing a home. It began by defining what a generation is and establishing a classification for Generation Y, then examined general traits and behaviours and suggested some of the implications of these on housing. Additionally, Generation Y’s attitudes and beliefs towards housing were emphasised as well as the importance of housing and ways of measuring affordability. Most importantly it was suggested that rising housing expectations are inflaming the unaffordable nature of housing.
It was also suggested that perceived risk be assessed to determine whether it would be an appropriate way to understand Generation Y’s attitudes and expectations towards housing. This was achieved by firstly defining perceived risk and explaining that it is the risk perceived by the consumer which motivates behaviour. Secondly the concept’s theoretical development was discussed and current models assessed before a model used by Stone and Gronhaug (1993) was suggested as the most appropriate model. The previous applications of perceived risk theory will be explored in the methodology, it will be assessed that there needs to be more research that applies perceived risk to complex decision making and specifically into the housing decision process.
Methodology
Generation Y were chosen as the population of interest due to their stage in the life cycle, documented generational differences compared to previous generations and the significance of housing affordability to this group. A pilot study consisting of four participants was initially completed and amendments to the main study made as a result. The final study involved sixteen participants representing Generation Y.
The sample consisted of Generation Y, defined as those born between 1979 and 1990. This made them aged between 18 and 28 in 2008. The sample included an even number of males and females and nine participants who were in a long-term relationship with someone they felt that they would buy a house and seven who regarded themselves as single or not in a relationship where they would buy a home with their partner. Quota sampling was used to ensure equal participation from males and females and those in a long term relationship and those who were single. Due to one female deciding that she would buy a house with her boyfriend, while filling out the form, the number of females defined as being in relationships and singles resulted in an unequal number. The reason for this change is unknown with the boyfriend not present and the participant’s friend who was her partner for the observation stage being single. The researcher states that it is important to assess both financial and emotional reasoning for this change. The participants’ salaries ranged from $30,000 to $100,000 and the median salary before tax was $45,000. As noted previously salaries for students were estimated on the basis of average graduate starting salaries for their given area of study.
The research consisted of four stages.
- Stage one allowed identification of expectations and attitudes as well as creating a point from which to calculate changes in expectations.
- Stage two allowed a reference point for the participants to select the specifications of their house, as well as providing rich data through observation into their expectations and attitudes.
- Stage three provided demographic information to allow meaningful analysis and allowed participants to select specifications for their first home. This allowed affordability to be assessed based on their expectations and attitudes.
- Stage four allowed interview data to be collected, facilitating greater understanding of the expectations and attitudes of this group.
Perceived Risk Questionnaire (Stage One)
Participants began by completing a perceived risk questionnaire. This questionnaire was adapted from Stone and Gronhang’s (1993) construct measurements for the purchase of a personal computer. It was assessed as appropriate to apply these constructs to housing because the constructs were developed to apply to a general product that was expensive, requires complex decision making and often had negative, unexpected consequences as part of the decision process. Personal computers possessed these characteristics when the scale was developed in 1993.
This questionnaire was made up of an overall measurement of risk and the measurement of the six dimensions of perceived risk. These six dimensions are derived from the literature and consist of financial, functional, physical, psychological, social and time-related risks. Following the methods of Stone and Gronhang’s study and general literature three indicators were used to capture overall risk and three for each of the six dimensions. For each of the twenty-one indicators a seven point bipolar scale was used, ranging from ‘extremely agree’ to ‘extremely disagree’1.
Bauer first introduced the marketing world to the concept of perceived risk in the 1960’s (Rindfleisch & Crockett 1999). Perceived risk is the subjective estimation by a consumer that the product will not offer all its expected benefits (Roselius 1971). Consumer research indicates that perceived risk is a powerful influence on consumers’ decisions (Mitchell 1992) and it is the risk perceived by the consumer that motivates behaviour (Mitchell 1999).
Although perceived risk has many applications, studies have shown that in general higher value, more complicated and higher involvement products are more risky than lower value, low-involvement, simpler products (Mitchell 1999). High involvement or complex buying behaviour is typically expensive, infrequently bought and highly expressive of a person’s style, beliefs and personality (Mitchell 1992). However the majority of perceived risk studies over the past 30 years have examined relatively low-cost products (Mitchell & Vassiliades 1997), while there has been a failure to apply theory and measurement to high-involvement products where it is most theoretically valid and practically meaningful (Mitchell & Vassiliades 1997).
Housing, as a high involvement expensive and infrequently purchased item, is an ideal product to develop perceived risk theory. Burke et al. (1979, pp. 297,9) suggested that limited research had been paid to ‘one of the most important purchases a family unit is likely to make’ and ‘despite the importance of the home purchase decision, it is a relatively unstudied process’. Twenty years later Mitchell (1999) points out that in terms of high-value products and services there is still very limited research and specifically recommends housing as a priority for further research. A review of recent research indicates little has changed since then and housing has still not been investigated within the context of perceived risk theory.
Creating a reference point and observation (Stage Two)
Following the completion of the perceived risk questionnaire each participant was taken to view the same two display homes. This stage was designed to create a reference point for the choices in the house specification questionnaire (stage three) and ensure that participants had a shared understanding of house size, features and relative costs.
This stage of the research was digitally reordered to allow rich exploratory data to be obtained into the expectations and attitudes of Generation Y, towards housing. Participants were asked, while walking around the houses to think about and verbalise whether this was the kind of house they would want, and anything different they would like. If dialogue was limited at any time participants were prompted to verbalise their thoughts and asked questions to gain insight. Probes included asking participants what the best or worst part of the house was, things that they would like in a house and if they could see themselves living in the house. This stage of the research was also designed so that participants were paired with a friend or partner, allowing the focus to be removed from individual participants and allow them to bounce ideas off each other in a more informal and relaxed manner.
At the completion of stage two and the commencement of stage three, participants were given the specifications of the houses used in stage two to create a reference point. These specifications included the land size, house area, number of bedrooms and number of bathrooms. This allowed all participants to make informed decisions in the questionnaire used in stage three on what house they would realistically buy.
Demographic questions and house specifications questionnaire (Stage Three)
The third stage in this research was a demographic and housing specification questionnaire that was split into two sections. The first column required demographic questions to be answered including; age, gender, yearly salary before tax, and whether they are in a relationship with someone they would consider buying a home with, and if yes their partner’s yearly before tax income. Due to the age range of Generation Y it was noted that many participants would be currently studying and their current yearly salaries from part time work would unrealistically influence results. Therefore, for students the yearly salary was assessed as the average graduate salary for their discipline. The salary was drawn from the SEEK Salary centre (Robert Walters 2008). The site is powered by the Robert Walters professional recruitment consultancies and consists of data from 100,000 Australians. The questionnaire then asked the number of years before participants believed they would buy a home and finally how much research they have done into buying a home. Participants had a choice of one, two, three, four, or five plus years until they believed they would buy a house. The choices for amount of research consisted of none, limited, moderate and extensive. These choices included the following definitions
- None - Never thought about purchasing
- Limited - Browsed general advertisements
- Moderate - Researched prices in areas you would like to live
- Extensive - Know exactly what you want and how much it will cost
The second column in the demographic and housing specification questionnaire, required participants to select what they would be looking for in a home they would purchase. This consisted of the number of bedrooms, number of bathrooms/ensuites, number of garages, number of lounge, rumpus or family rooms and between one or two storeys.
Participants were then required to make a choice of land location between 20 preselected locations. The locations were limited to the Gold Coast Council area and participants made their choice on the bases of the price of the land, size of the land and suburb location. The use of Gold Coast land prices facilitated an informed response from participants who all came from the Tweed and Gold Coast areas and as such were familiar with each of these suburbs. The data from this stage of the research was used in the calculation of affordability undertaken.
In-depth Interview (Stage Four)
In-depth interviews were subsequently conducted in stage four focusing on the expectations and attitudes of Generation Y towards housing. The interview questions were based on overall risk and the six dimensions of perceived risk. A total of twenty-three questions made up the in-depth interview framework, consisting of three questions for each of the six dimensions as well as an additional five questions to capture general attitudes, expectations and risks associated with buying a home. The questions were developed from the six dimensions of perceived risk indicated in the literature to make up aggregate perceived risk. In addition, questions were developed to determine overall risk, and additional questions were formed from the literature such as questions on the impacts of petrol prices, commitment to debt, unemployment and relationship separation.
The purpose of stage four was to derive the previously stated benefits that come from using a mixed method. It allowed the researcher to examine the data from the fieldwork questionnaire and flesh out these results with reflective answers derived from interviews. As will be demonstrated in chapter five this allowed for greater insight into the research questions being addressed.
Analysis of the Data
Analysis of the qualitative data was done by creating categories for the observations and the interviews and tabulating the results from the two stages. A cumulative understanding of the results was created by identifying themes and patterns and organising them into categories. The identification of categories was done using two techniques, preset and emergent categories. Using preset categories a list of themes and patterns was identified, as possible areas of results, from the literature before analysis (Unrau, Gabor & Grinnell 2006). Additional categories were added and some preset categories dropped during the analysis as emergent categories were defined as they reoccurred in the data (Unrau, Gabor & Grinnell 2006).
These categories were used to perform analysis on the relationship between the overall data, the literature and the research questions. This analysis was undertaken by tabulating the participants’ responses, indicating each participant who mentioned each category. Each mention was defined as positive, negative or with no direction. The total number of mentions allowed the importance of each category to be assessed relevant to this cohort. This process was repeated analysing the results from the interviews.
Overall analysis of affordability
The results from this stage of the research provide interesting data on affordability relative to the participants’ attitudes and expectations towards home ownership. Asked to realistically select the specifications of their first house, responses resulted in housing (that is house and land packages) ranging in price from a low of $332,000 to a high of $713,000. The average housing price was $461,813. The corresponding affordability of the cheapest house was 26.86 percent of the participant’s household gross earnings, just below the housing stress benchmark of 30 percent. This was the only participant who chose a house requiring repayments lower than the 30 percent of gross income housing stress benchmark. Participant 15 selected the third cheapest house in the study and additionally had a partner who was earning an income well above average which increased the household income significantly. The corresponding affordability of the most expensive house was 162.94 percent of the participant’s income. Therefore the participant would be contributing all of their gross income and still not be able to meet their repayments. Notably, two participants had repayments accounting for over 100 percent of their gross income and an additional seven who would have required over 80 percent of their gross household incomes to meet repayments. It is interesting to note that all of the single participants chose houses with repayments over 80 percent of their gross income. All of the single participants, with only one exception, explained to the researcher that the house specifications that they had selected were for a house that they would purchase with a partner and in a few years time when their income had increased.
Although only one participant chose an affordably priced house based on the percentage of income method of affordability, nine participants would be able to borrow greater than 100 percent of the value of the house. For example participant 1 chose a house that would require 56.84 percent of their household income to meet repayments, however based on their income they could borrow an estimated $586,000 which would cover the chosen house price of $524,000. This amount suggests that the participant is within their affordability range. It is noted that all those in a duel income situation could borrow 100 percent of the value of their chosen house while none of the single income participants could borrow more that 70 percent of the value of the house.
The deposit gap was also calculated. Determined by the difference between the price of the house and the maximum loan available based on their income. The required deposits ranged from 0 to 67 percent of the total house price indicating dollar values ranging from $0 to $478,000.
Discussion and Conclusion
The aim of this research was to understand Generation Y’s attitudes and expectations regarding housing and the potential impact of these attitudes and expectations on perceived housing affordability. The data complied from all of the stages provided an abundance of information indentifying the attitudes and expectations of Generation Y toward home ownership. The major attitudes and expectations are divided into nine areas and will be discussed in the following sequence: socialising and entertaining, high expectations, acceptance of debt, location, creation of an identity, family and the creation of a home, housing too expensive, priorities and not willing to sacrifice lifestyle for financial success.
Socialising and entertaining
Participants demonstrated through the two qualitative stages (stage two and four) a strong emphasis on a home being an area to entertain and socialise. During the observation stage no other area of the houses gained as much attention as the entertaining areas. Entertaining areas also gained strong responses in the three desires participants had for their first home during the in-depth interviews.
High expectations
With a house having such a significant emphasis on this group’s life it is not surprising the degree of detail participants were able to provide on what they desired in a house. The results to the in-depth interview questions indicate participants are willing to drop their expectations and make sacrifices in order to enter the housing market. However, analysis of the complete research process suggests that while they are willing to lower their expectations they are only willing to do so to a certain level, with participants reasoning in interviews that even with the lowest expectations they wouldn’t be able to afford anything.
The interviews showed that participants also had the belief that if they really want something they can achieve it and therefore do not need to sacrifice. The biggest sacrifice this group were willing to make was to delay the time until purchase. This supposed sacrifice requires little discomfort for this group as it allows them to delay any risk and pursue other interests such as socialising and travel. Considering travel was raised as a reason as to why participants didn’t want to buy at present and the emphasis this group places on entertaining and socialising, it is easy to question how big a sacrifice delaying the purchase of a house really is. The results indicated that the location of their house is highly important for this group. Giving the emphasis placed on location it is not unexpected that only one participant was willing to sacrifice location despite the huge differences in affordability noted for participants who chose cheaper land.
Acceptance of debt
The general acceptance of having and obtaining more debt in order to purchase a home was evident through the in-depth interview questions. Debt was perceived as necessary by eleven participants when they were asked how debt relates to housing and affordability. The acceptance of debt was also discussed by participants when asked what effect on peace of mind owning an unaffordable house would have. Finally the responses were mirrored again when asked if they were willing to commit to debt, with nine stating that there was no alternative.
Creation of an identity
Participants considered a house as more than simply the provision of shelter and financial benefit. Responses to the in-depth interviews show that a house was seen as an extension of ones personality and somewhere to create an identity. It was shown that personal development is important aspect for this group supported by the literature. The ability to create an identity for this group relies greatly on the location of the home as will be discussed in the following section. Their identity was also shown to be highly dependent on the ability to socialise and entertain as previously discussed.
Location
The location of the house exposed a central feature of housing for this group. Location was the most important element in a first house. The majority of participants believed that society makes judgement based on the location of a home. In addition, participants thought it important to live in a quality location to advance in their career and that the location of a home affects personality. This is a significant point as it indicates that their self-confidence is linked to their home. Although physical risks were deemed as very low by participants; the only physical risk was living in a dodgy (sic) area, with dodgy generally defined as less than desirable, unstable, unreliable or risky. This again shows the significance of location of this group’s belief in personal development. The rising petrol prices have only amplified this groups’ desire for superior locations with many stating that it was now important to live close to your job and facilities due to the increased costs in transportation.
Family and the creation of a home
Housing was seen as central element required to create a ‘family’, that was generally defined by participants as something similar to a traditional, nuclear entity. The creating of a family was intrinsically linked to home ownership for this group. Participants thought that it was important to own a home to be able to create a family and believed a house that they could afford today wouldn’t satisfy their needs in the future, as it would be too small to raise a family. Many participants noted that they desired more than two bedrooms in their first house, further suggesting that this group sees one purpose of buying a house being to create a family. Furthermore there was the belief by all participants except one, that they would be in a relationship before they purchased a house and therefore they would have duel incomes to make repayments.
Housing too expensive
The overall feeling of this group was that they were totally devastated by their inability to afford a house. The results presented in chapter four show an acceptance that housing is unaffordable. The results additionally show the groups priorities and unwillingness to sacrifice lifestyle to gain homeownership due to the associated stress.
Gaining insight into this group’s primary reasons for buying a house allows us to gain an understanding of their level of devastation with housing affordability. With the emphasis of financial gain absent from this group’s calculations and an emphasis on creating an identify, entertaining and creating a family home in a good location, it is not surprising that their attitudes and expectations are so high.
Conclusion and Limitations
Through the application of the research process the research aim: to understand Generation Y’s attitudes and expectations regarding housing and the potential impact of these attitudes and expectations on perceived housing affordability, has been effectively addressed. The key findings of this research are that:
- Housing is a medium for this group to express and create their identity. This identity encompasses the ability to develop their personality, socialise, create a family and develop their careers.
- This group have high expectations. It is suggested these expectations are high due to the emphasis placed on housing to create their identity and enhance their personal development.
- These high expectations are impacting negatively on perceived housing affordability for this group.
The limitations of the study relate primarily to its exploratory nature and in part to the research cohort. That is, given the research is exploratory it is difficult to generalise from the findings. However while this limitation is recognised, the findings have been evaluated through direct reference to the literature, therefore providing a reference point for the validity and reliability of the findings and their use in a more general context. In terms of the research cohort, it was recognised from the outset that given the age of Generation Y, their understanding of housing and their engagement with housing may be limited. |
