Insights into Gen Y: A guide for investors

Posted on 24/03/2008  

It hasn't happened yet, but when Generation Y (those Australians born between 1982 and 2000), get their hands on some serious money, real estate trends will radically change. Gaining some idea of how Gen Y thinks and acts might help investors pick and profit from these trends.

At the 2006 Census there were 5.15 million Australians in this demographic category - the largest age group in the country - with the oldest of them now aged 26. Their lifestyle and habits have been exhaustively scrutinised by academics and marketers trying to tap into their spending habits.

Before we get into it, let's acknowledge that 1.58 million Gen Ys aged 15-25 still live with their parents (more than half of their national age group population). Many are delaying leaving home until they finish studying, enter the work force, marry or have children, according to McCrindle Research. So Gen Y live at home longer than previous generations because of the cost and the time it takes to finish tertiary education and enter into paid work (compared with baby boomers, many of whom left school and started apprenticeships at 15 or 16).

Gen Y often start adult life shackled by debts (HECs debts, credit cards, mobile phones etc), compared with the boomer generation (this writer recalls needing father to go guarantor to buy something on hire purchase - his generation always said no!). Among the pile of press clippings on our desk are stories about Gen Y's love of credit cards and apparent fearlessness when it comes to personal debt. According to Mark McCrindle, only one in 25 Australians carries more than $100 in cash and Gen Y has grown up thinking that all you need to function in this world is a mobile phone and a plastic card.

Next time you are queuing up to pay for petrol, watch the young kid in front of you - want to bet they will buy a soft drink and a packet of fags and put it on EFTPOS?

"Seventy-three per cent of Ys in this country are in substantial debt," Dr Sally Breen, associate editor of Griffith University's Review magazine wrote in The Courier-Mail.

"They have new car loans, designer furniture on 36 months' credit, $10,000 boob jobs on credit, red-line property portfolios, not to mention all the Bettina Liano jeans and gourmet beers burning a very large hole in the plastic."

Breen, a Gen Y herself, says young people have to accept some blame for their indebtedness, but also blames the previous generation. "Who sold them the idea in the first place that they could ‘have it now'?" she asks.

And it clearly isn't changing anytime soon. A report late last year claimed that a third of the credit card applications made in this country in 2006 were from Generation Y. Gen Y are not scared of debt and many have already bought property. At any rate, they have accumulated more wealth than their parents or grandparents did at their age. Residential property analyst Michael Matusik says an ABS survey of household assets in 2006 found that the average Gen Y had $5,500 in the bank, $2,100 invested in shares and $10,000 in superannuation.

The Courier-Mail wrote a lot about Gen Y in October last year when co-sponsoring a debate as part of its Our Future Your Say series. Some of the commentary was controversial - Labour Solutions Australia managing director Andrew Northcott contributed an essay in which he argued that Gen Y has a fickle work ethic and needs to "slow down and think things through". Northcott says his experience is that employers are not looking for a 25-year old with two degrees and no experience or commercial sense.

He says the quick-thinking but easily-distracted Gen Ys have a strong desire to succeed but they are perhaps unwilling to sacrifice work-life balance (which he construes as earning higher salaries in return for reduced time spent at work). Northcott claims that when baby boomers retire, the Australian economy could fall into an appalling state unless there is a change in (Gen Y) attitude.

Social researcher Denis Muller seems more positive about these young people. His 2006 research paper "Fearless and Flexible" portrayed Gen Ys as having little or no expectations of a "job for life" (thinking it a form of imprisonment). They can multi-skill like crazy - simultaneously sending emails, texts and talking on the phone, but they seem to have little loyalty to an employer. They have grown up understanding and accepting that future work is all about mobility, adaptability and change. They also have no fear of an economic downturn and no awareness about the social and economic change brought about by globalisation and the information revolution. In short, Gen Y considers the globalised, wireless world as "normal".

To emphasise the different mind-set of Gen Y compared to older generations, consider Muller and fellow researcher Irving Saulwick's earlier research. They asked similar questions of working people who were in their 30s, 40s and 50s. The contrast was stark, with the older focus group revealing that the effects of globalisation had profoundly undermined their sense of job security, fairness and their sense of being able to survive.

As for who influences Gen Y, they pay attention to views of their peers, unlike the Baby Boomer generation who are/were influenced by authority figures and make decisions based on data and fact. Gen Y will be more likely to make a decision based on what their peers think - and this is generally a group of between three and eight friends.

Mass media and music also plays a big role in forming the ideas and thinking of Gen Y. The Barna Research Group found that when teenagers were asked what or who had a lot of influence in their thinking and behaviour, 25% said they were influenced by TV and movies.

Queensland is attracting Gen Y across the border, with the Australian Bureau of Statistics reporting that since 2001 there has been a 4% increase in the numbers of people aged 26 and younger moving to the state; 33,426 more young people moved to Queensland in 2006. In Brisbane's rapidly expanding inner-city apartment precincts, 30% of occupants are in the 20-26 age group. So it's particularly worthwhile for those interested in investing in Queensland property to look at Gen Ys housing needs and wants.

The housing needs of Gen Y will no doubt change as they move into their 30s, but as of 2006, 19% of young people in this group had a mortgage and only 3% owned their homes outright. The majority (64%) rent private property, according to Matusik Property Insights and the ABS.

Matusik says that when Gen Ys do leave home, they have specific needs in the homes they occupy. They live in a connected but wireless world - occupants are quite comfortable communicating via email and mobile phone and many homes occupied by Gen Ys eschew the "fixed" telephone line.

Gen Y buyers and/or renters don't want huge homes - they want to live in a well-utilised space with dual-use options (e.g. a kitchen bench that doubles as a breakfast bar or somewhere to put the wireless laptop when browsing the early morning news!). And they want more flexible space where they can "hang" with their friends.

Matusik says this translates to more flexible floor plans, including integrated outside living areas. They are attracted to the external lifestyle of inner-city living with access to gymnasiums, restaurants and parks. This demographic group is likely to be attracted to the infill and transit-oriented housing being developed close to amenities like cafes, shops, parks and nightlife. So inevitably Gen Y will be attracted to attached housing - not just for affordability but to make better use of their time.

McCrindle's paper "Understanding Generation Y" tapped into a concern for property marketers trying to sell product to this demographic. Seventy percent of Gen Y income is spent arbitrarily on entertainment, travel and food, according to McCrindle, who prepared the report for the Australian Leadership Foundation. The top three recreational pursuits attributed to Gen Y are: "go to a party" (74%), "listen to the radio" (74%) and "go to a movie" (72%).

While much of this is geared to the needs and desires of the age group (predominantly teenagers and pre-pubescent youth), McCrindle expects the core ethos will continue to influence Gen Y as they age.

Matusik's report provides some specifics for marketers wanting to tap into the Gen Y buyer/renter market. Gen Y are information junkies, impatient and totally wired. They like to buy but don't dare give them the impression they're being "sold to". Mass marketing turns them off -they are more directly connected to their peers through social networking phenomena like Facebook, MySpace and YouTube. They hate to wait, so a slow-loading website will not hit its target. Matusik suggests property marketers need to work on the interactive side of their websites because Gen Y buyers know all about the virtual tour and will spend time experimenting with re-arranging furniture or looking at floor plans in different configurations (if you give them the option).
Matusik cautions: "For this generation, 30 minutes to do anything is akin to "forever". If they send an email asking for information, they expect a response the same day and preferably within the hour."

For any Gen Y hopeful of becoming a home owner, we'd have to wish them luck, given the findings of the Productivity Commission Inquiry into Housing Affordability in 2004. Excuse us for paraphrasing a massive set of reports, but briefly, between 1970 and 2000, the average real (constant dollar) price of housing doubled. At the same time the area of land per average dwelling unit fell and size of dwellings on average only rose marginally because pre-1970 housing stock remained significant.

Over the same period, real household incomes rose at a much lower rate per year (about 1%). And we all know what has happened since then. According to a 2006 ABS survey, the average income of Gen Y was $1065 per week, the average net worth $88,583 and net equity in owner-occupied housing was $34,000.

Yes indeed, we wish them luck.


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