Message to young adults: don’t give up on home ownership

House prices up. Rents up. Living costs up. No wonder potential home buyers’ confidence is down, but it shouldn’t be forever and here’s why.

It’s horrible to hear of so many young Australians abandoning the idea of ever owning a home.

Surging house prices over the past three decades had made it difficult enough, and recently two more huge barriers were stacked in front of them: fast-rising rents and interest rates.

A property that perhaps cost $200,000 in the 1990s now costs four or five times as much, while the 4 percentage points of Reserve Bank rate rises since May 2022 have increased repayment costs almost 60 per cent.

Rents, too, have been soaring, which strips more spare cash from savers’ bank accounts, as do all other living cost increases.

However, there are some positive developments that will hopefully make things easier for potential homebuyers.

The often-used line that rent money is dead money is true. Renters are helping their landlords repay big mortgages while gaining no benefit from the rising value of property in which they live. PropTrack figures show median rent nationally rose 12 per cent in 2022-23 to $520 per week.

Home ownership remains the easiest way to build wealth, and enjoy tax-free capital gains, so even if you start small – in a more affordable suburb or town as an investor yourself, or with financial backing from family members, that initial step will pay off in the long run.

These four factors can hopefully help more young adults see home ownership as a goal rather than an impossible dream.

GOVERNMENT HELP

Federal and state governments have a long list of assistance programs for first home buyers, so check online or speak with a lender or mortgage broker.

The tide should eventually turn and make home ownership easier again. Picture: iStock

Stamp duty concessions, grants for building new homes and other incentives from housing authorities have been around for years, while the federal First Home Guarantee scheme allows people to buy property with just a 5 per cent deposit without paying expensive Lenders Mortgage Insurance.

This month Prime Minister Anthony Albanese said the help-to-buy scheme – a shared equity program where the government takes a stake in a home and then takes part of the profits later on – would start in 2024 for tens of thousands of families.

FIXING THE PROBLEM

Governments recognise that the strained housing market’s high rents and high prices are caused by lack of supply, and are throwing billions at rectifying it.

However, boosting supply may take years, and may be offset by waves of new immigrants also wanting to buy from the limited pool of real estate. Hopefully it works out OK for young buyers.

DIVIDE AND CONQUER

The Bank of Mum and Dad has never been more active, helping with loan guarantees, deposits, keeping kids at home for longer, and sometimes co-buying with them.

But even without parental help, friends and family can pool resources by staying in share houses to cut rental costs, saving together or investing together – but make sure all agreements are clear and watertight.

BEYOND YOUR BACKYARD

Prices in outer suburbs and many regional areas remain relatively affordable, so consider widening your area of focus.

And understand that property markets and economics move in cycles. Economic data around inflation, jobs, wages and other indicators suggest interest rates may have peaked, and the cost of repaying a typical $500,000 mortgage may head back towards the $485 a week it was in April 2022, rather than today’s $765.

Originally published as Message to young adults: don’t give up on home ownership