MILLENNIALS DON’T NEED LIVING ROOMS 

Whenever we talk about the drivers of property prices we always list “Population” as one of them. Some take population to mean only an increase or decrease in the population or the number of people that live in a particular area.

However, at Calnan Flack when we refer to population, we are referring to all areas that affect population. This includes things like the social values of the day and the way we interact and live our lives.

When you think about this it makes complete sense.

As society evolves and becomes more complex the natural social interactions and structures will change. The interactions of a group of cave people would be very different to those in the 1800s.

How we interact and socialise now is drastically different to how we did in the 1970s. Sure, we had phones in both eras. We watched sport and listened to music. We even played games, but the current technology and infrastructure are vastly different now. Social values and what’s seen as acceptable behaviours have also changed.

This means that the way we as a population interact and live now is vastly different.

This necessitates that the way we live our lives and hence the accommodation we desire is also immensely different.

Architect Patrik Schumacher, recently made the controversial statement that “Millennials don’t need living rooms — and that apartments should get smaller.”

He went on to say in a paper published by the Adam Smith Institute that “Those who are now making the hard choice between paying 80 percent of their income on a central flat versus commuting from afar will, in the liberalised future, appreciate new options and perhaps choose to pay only 60 percent for a smaller but more central flat,”

“For many young professionals who are out and about networking 24/7, a small, clean, private hotel room-sized central patch serves their needs perfectly well.”

This is a very interesting concept and certainly a change to the way that I was brought up where a quarter acre block with a Brady Bunch style family home was what everyone aspired to.

This change is reflective in the way we live life, work and the services we demand.

Why would such accommodation even need to include a kitchen given the growth in “Food Sharing Services” like UBER Eats?

Demand will drive the price and also the supply of such micro-apartments.  See our previous blog Rise of the Nano House below.

RISE OF THE NANO HOUSE

However, as great as Adam Smith’s Invisible Hand is, it’s ridiculous to think that the choice is between

  1. spending 80% of your income on renting a typical 2 or 3-bedroom apartment
  2. as opposed to 60% of your income on a micro-apartment

This is because if lifestyle changes, amenities, and infrastructure drive up the demand for such accommodation, then the price will rise also.

As demand increases its likely that the price of such micro-units will be driven up to 80% of wages also – quite a sobering thought.

Although the 80% figure seems extreme it is referring to the London property market where the grim choice is to live in overcrowded share flats or face long commutes. It’s said that over the last 20 years London’s population has grown by 25% yet accommodation has only increased 15%.

You do the maths, it doesn’t look great for renters. Landlords, however …

I think the point I’m trying to make was best made by Sir Winston Churchill when he addressed the House of Commons in May 1909.

“Some years ago in London, there was a toll bar on a bridge across the Thames and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings offended the public conscience, and agitation was set on foot, municipal authorities were roused, and at the cost of the taxpayers, the bridge was freed, and the toll removed. All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted!

And a friend of mine was telling me the other day that, in the parish of Southwark, about 350 pounds a year was given away in doles of bread by charitable people in connection with one of the churches. As a consequence of this charity, the competition for small houses and single-room tenements is so great that rents are considerably higher in the parish!

All goes back to the land, and the land owner is able to absorb to himself a share of almost every public and every private benefit, however important or however pitiful those benefits maybe.”

This story illustrates why we so often quote Henry George when he said that “In the end, land will always take all the gains”. And so it will unfortunately be for Schumacher cheaper but smaller apartments.

When land becomes so expensive as humans, we seek solutions. Clever solutions.

Land allocation must become smaller or more expensive (or both) as it becomes more desirable. This is what Schumacher was really saying in the quotes above. He is calling for society to change our living styles and standards. Accepting smaller apartments and paying less rent.

Unfortunately, Churchill took the wind out of that argument.

It’s the population driver at work, as always, driving property prices. Understand this and economics will make a whole lot more cents for you!

IMPORTANT NOTICE

Disclaimer: Any opinions or recommendations expressed here do not purport to Financial Advice but rather should be considered General Advice and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. Should Financial Advice be sought, we suggest you seek such advice from an appropriately qualified advisor. Any yields, rental income, tax rates, interest rates, depreciation rates, inflation rates Dividends per Share (DPS) and Earning Per Share (EPS) etc shown are estimates only and should not be used as a guide to future performance. Past performance is not necessarily a guide to future performance and should not be relied upon for this purpose. Authorised Representative of PGW Financial Services Pty Ltd – AFSL 384713
2019-02-28T10:15:25+11:00

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