Homeownership: Human right or privilege? How young First Home Buyers are getting pushed out of the market

What is the state of the Australian housing market?

In an era of social media, comparison is unavoidable. Casually scrolling down your newsfeed leads to a montage of posts and articles detailing the achievements of people younger and more successful than you. One trope often gracing your screen is the success story of a self made early twenty year old achieving the milestone of homeownership. But how far into an article about a millennial first home buyer do you need to read before it mentions their parents helped them?

Despite predictions the pandemic would result in a recession, Australian housing prices have continued to soar. In 2021, prices rose 22 per cent, the biggest surge since the 1980’s. This spike has been driven by a number of factors: all time low interest rates and a limited supply of properties increasing demand, investment incentives and Covid-induced economic disruptions.

As prices rise, the barriers to get into the property market rise too - with many young first home buyers struggling to save for the 20 per cent deposit on top of costs such as conveyancer fees, stamp duty, and furniture. The average deposit for a first home buyer exceeds $100,000 in Australia, having increased by 16 per cent since 2019, for an average loan of over $400,000.

Housing affordability has deteriorated drastically in the past few decades as property prices outpace income growth. The house price to income ratio of 3.5 three decades ago has jumped to six nationally, with major cities such as Sydney reaching more than eight.

How does the market impact young First Home Buyers?

Because of this, many young people need help from their parents - the Bank of Mum and Dad - to buy their first house. On average the typical first home buyer aided by the Bank of Mum and Dad received $90,000 in financial assistance. These first home buyers only need to contribute a deposit of around $17,000, giving them a leg up to get into the property market. This is a problem as it creates an unequal housing market for those that can’t receive the same help, inflating prices and further making housing less affordable overall. 

The illusion that homeownership and affordable housing is achievable for all young people, if only they refrained from spending money on overpriced avocado brunches and coffee, has been dashed. Independent housing and homeownership is not a right but a privilege, with a much lower barrier to entry for those who come from money.

How does the market impact disadvantaged First Home Buyers?

Young Australians from lower socioeconomic backgrounds are not only less likely to be helped into the property market by their parents, but are more likely to have lower incomes. Young Australians from poorer households are less likely to go to university, and the ones who do are more likely to earn less. A survey conducted by the Social Mobility Foundation found that in their first job after graduation, wealthier university graduates earn up to double than their less privileged peers. Students with lower paying jobs typically had parents who held technical, manual, or service jobs, while their wealthier counterparts had parents in the professional roles including doctors, teachers, and chief executives. It was also found that lack of family connections, financial support, and tendency to apply to fewer roles further contributed to this disparity.

A lower income further impacts young disadvantaged Australians’ ability to afford the rising costs of owning a house. This is evident in the sharp decline of the homeownership rate over the past 20 years in young lower-income Australians. While the overall homeownership rate has fallen four per cent, low income 25-34 year olds saw a drop of fifteen. With all these factors at play, the pressure is on to give young first home buyers a much needed helping hand into the housing market.

Photo by Blake Wheeler on Unsplash

Is the Government doing enough?

The Australian Prudential Regulatory Authority (APRA) has recently cracked down on debt to income ratios of home loans to combat rising housing prices. This will limit prospective buyers from borrowing more than six times their income. In theory, this should stop the housing price boom and help first home buyers be able to afford a property. The unpleasant truth of this cap however is it unfairly impacts first home buyers' ability to get a loan approved in the first place, more so than investors. 

Other initiatives have also been introduced by the government to help first homeowners get their foot in the market. Schemes and grants with increasingly confusing acronyms (ie. FHOG, FHLDS, SSS, VHF) have been introduced by the Australian government to aid first home buyers with the purchase of their first property. Plus an exemption or reduction on stamp duty is available as well, depending on the cost of the house.

However it can prove difficult navigating what grants or schemes you are eligible for, the terms and conditions in fine print and whether the benefits outweigh the negatives, and the answer isn’t always so simple.

What more can be done?

Dr Luci Ellis, Assistant Governor of the Reserve Bank of Australia has been outspoken against government grants programs, asserting that throwing money at the problem was not a solution.

“You don’t improve affordability by giving people even more money to then bid up prices. Housing market policies that add to demand will only amplify any upswing in prices”, Dr Ellis stated.

Dr Ellis also criticised investor property tax incentives through negative gearing and capital gains exemptions, making it easier for investors to afford property and the costs that come with it.

Governor of the RBA, Dr Phillip Lowe has also chimed in on the housing crisis, citing current curbs on lending like the APRA initiative and increased interest rates are not the best way to slow booming house prices. Rather, Dr Lowe indicates that structural change is needed for the upheaval of our taxation and social security systems to improve housing affordability.

““Everyone deserves the opportunity to own the roof over their head, not just investors or those with parental help.””

Politics is the driver of this change, with political policies making a direct impact on our financial future. This was evident when Labor campaigned on reducing tax incentives and breaks for investment properties in the 2019 federal election. The Liberal Morrison government campaigned against these “housing
taxes” however and Labor lost the election. 

The future of homeownership in Australia

Everyone deserves the opportunity to own the roof over their head, not just investors or those with parental help. Homeownership is more than just a place to stay. It provides people with a sense of financial, physical, and emotional security and safety. 

Research undertaken by the Australian Senate Committee concluded that access to affordable and quality housing is central to community wellbeing. Not only meeting the basic need for shelter, it provides a foundation for family, social stability, contributes to improved health and educational outcomes, and a productive workforce.

An upheaval of the housing market is needed to ensure these benefits are seen by more than just a lucky few. The future of many young Australians’ paths to homeownership depends on it.

WORDS: JOANNE FONG
PHOTOGRAPHY: BRANDON GRIGGS & BLAKE WHEELER ON UNSPLASH