economics

Aussie dream, a pipe dream?

Some things in life are certain. Most people tend to cite death and taxes, but new housing data now shows Australians can be sure of something else: home ownership is becoming less of a certainty for each generation, one after the next.

Author

Diwa Hopkins

The return to growth in housing prices across the east coast capitals at the end of 2019 has revived concerns over home ownership. The federal government’s latest first home buyer scheme, which kicked off 1 January, is a good start, but it needs to be expanded to be effective in arresting the trend of declining home ownership. 

Newly available data shows declining home ownership to have been a slow and consistent trend for decades. For example, as the graph to the right indicates, if you were born between 1947 and 1951 then around 55 per cent of your age group had purchased a home by the time they were 30. For those born between 1962 and 1966 it was more like 50 per cent, and for Australians born from 1987 the rate of home ownership by the age of 30 has dropped to around 35 per cent. 

 
economics

While interest rates are at an all-time low, there are additional costs to accessing finance, which is now only available to a shrinking pool of borrowers

 

Home ownership underscores many of HIA’s policy positions – it is something we’ve long advocated for regardless of the ebbs and flows of the public conversation. At the heart of this advocacy is that housing – shelter – is a basic human need. Adequate and appropriate housing that is proximate to jobs, services and community is the basis for families and individuals to contribute, participate and flourish in society. 

With home ownership comes greater autonomy, and a sense of financial and social stability – all of which are key ingredients to a cohesive and well-functioning society. The great majority of Australians look to achieve home ownership, yet there is growing despondency that for many it may be beyond their reach. 

At best, home ownership in Australia is being delayed. However, it is likely that for a growing cohort of households this delay will ultimately dissolve their home ownership aspirations into an unachievable dream. 

Home ownership is best viewed from the perspective of first home buyers (FHBs). There are many (and evolving) factors that have ultimately seen would-be FHBs delay (and for some, abandon) efforts to enter into the property market. 

Of course in the years just prior to the building boom of 2014–2018, poor affordability – underscored by insufficient housing supply – had been the number one culprit. The supply of affordable housing had failed to keep pace with demographic demand, placing great pressure on residential property prices (and who can forget the four years in Sydney when house prices were generally growing by the double digits at an annual rate?). 

Housing supply today has just about caught up with demand, putting at best, a short-lived lid on price pressures and thereby improving affordability. So long as there is not a repeat of the consistent underbuilding of the 2000s (of course this is a great, big ‘if’ and policymakers, planners and regulators should not take this for granted), the emerging price increases should remain reasonably contained. 

 

Newly available data shows declining home ownership to have been a slow and consistent trend for decades

 

When FHBs today seek out the dream of owning their own home, there are still multiple factors – and barriers – they contend with that simply didn’t exist for previous generations. Most recently, these barriers have centred around access to credit. When FHBs go to a bank for a mortgage, they now face the pointy end of a decade’s worth of reforms that have sought to support an ‘unquestionably strong’ financial system. Banks are now required to hold half as many assets again as they were prior to the GFC, with the extra cost passed onto borrowers. 

Banks are also required to lend according to much more stringent criteria: they apply greater scrutiny on the income and living expenses of applicants, non-salary income is discounted when establishing exactly what an applicant’s income is, interest-only loans attract tighter criteria, and loan serviceability buffers are higher, just to name a few of these tighter measures. 

So, while interest rates are at an all-time low, there are additional costs to accessing finance, which is now only available to a shrinking pool of borrowers. FHBs, with typically limited capital behind them, are the first to feel this credit squeeze compared with other borrowers such as trade-up buyers and investors. 

Lurking further below the surface of delayed home ownership are longer term social and demographic trends. In particular, FHBs today have been in formal study – which increasingly includes higher education – for longer than previous generations. Accordingly, would-be FHBs are entering the work force and starting to save for a deposit at a later stage in life. More recent generations of FHBs have been required to contribute to the costs of their tertiary and trade education, generally adding to their debt burden before they obtain a mortgage.

economics

With home ownership comes greater autonomy, and a sense of financial and social stability

 

Delayed family formation is also an additional factor behind the delay in buying a home. With people increasingly starting families later in life, so too do they delay buying a home (irrespective of whether this specifically occurs before or after a child’s arrival). As an aside, it is unclear whether FHBs are entering home ownership at a later stage in life because family formation is occurring later or conversely that families are having children at a later stage in life because their ability to enter home ownership is only occurring later. There could well be a degree of ‘reverse-causality’ in and around these decisions.

Clearly, there is a myriad of factors conspiring against first home buyers, leading to either delays in or outright abandonment of home ownership. This has been a long-term problem occurring over decades and it presents challenges to our country’s social and economic fabric. Governments at all levels need to get the basics of housing policy right to ensure that first home buyers can reasonably source finance to participate in a housing market that is adequately and appropriately supplied with affordable housing. 

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