‘Ongoing crisis’: Alarming share of young people can’t afford to save for a house

Only one in 10 potential first home buyers could achieve home ownership after decades of soaring property prices locked most young Australians out of the housing market, new research found.

Most would struggle to save a deposit, meet the mortgage repayments or both following a structural decline in interest rates, years of underbuilding and population growth that pushed property prices higher.

Most first home buyers cannot afford to get into home ownership, the research reveals.Credit: Peter Rae

Efforts by successive governments to help first home buyers have been in vain. Even federal government schemes to buy with a low deposit or co-purchase would still leave many unable to enter the market.

Almost a third of the increase in house prices had been driven by falling interest rates from 1994 to 2017, new research from Australian Housing and Urban Research Institute (AHURI), released on Thursday, found.

The lack of housing supply, population growth and wages growth accounted for the remaining two-thirds of house price growth in the same period.

As a result, only 11 per cent of first home buyers can afford to purchase a property, while the rest will struggle to save for a deposit or service a mortgage or both. Australia’s home ownership rate has fallen from 71 per cent to 66 per cent in 25 years.

The federal government’s Help to Buy shared equity scheme would assist almost twice as many low-income first home buyers than the Home Guarantee program that allows a purchase on a low 5 per cent deposit, the research found. However, both were likely to increase demand and would need to be matched by an increase in supply of local housing to avoid fuelling further house price rises.

But 38 per cent of aspiring first home buyers could not achieve home ownership even with the shared equity scheme.

The research did not account for gifts or bequests from parents.

Lead researcher and Curtin University Professor in the School of Accounting, Economics and Finance Rachel Ong ViforJ said only a privileged few can afford to get into home ownership in Australia now.

“Those who have much higher incomes, those who tend to come from wealthier families, and of course, they tend to be in full-time jobs, but they would basically be people who have higher socioeconomic status,” said ViforJ, who modelled the research on a series of datasets, including ABS figures and the HILDA survey.

She said there is an ongoing housing affordability crisis in the country that successive governments have failed to address with different schemes.

“What this tells us is we have an ongoing crisis in terms of young people being able to access home ownership,” she said.

“We know successive governments have tried to implement assistance schemes, but that has not been particularly helpful because if they were, we wouldn’t have these statistics that we have found.”

She said a range of solutions will be needed to tackle the long-term effect of extended periods of low interest rates on house prices.

“The damage has been done. Prices are unachievable for most people these days,” ViforJ said.

While rates are back on the rise, it would not be enough to dampen property prices in the face of strong population growth and pent-up demand, she said.

“If we’re going to make a real impact, if we’re really going to solve the housing affordability crisis for young people, we really need to look at steps of implementing painful reforms, like tax reforms and other policies that are keeping house prices up.

“Negative gearing is one, but capital gains tax is the major one. People want to buy property because they know they can get tax benefits.

“All those policies bring great financial benefits, and they do keep house prices up. They benefit property owners but really make breaking into the property market for the first time really hard.”

The Australian Housing and Urban Research Institute managing director Michael Fotheringham said rates falling to ultra-low levels helped contribute to rapid price growth that will have long-term effects.

“The rapid escalation of house prices is having a long-term effect, and it will take a long time for wages to catch up,” Fotheringham said.

“The demand is sufficient to keep this a problem, particularly for young households, for the foreseeable future. There are no rapid fixes here. We are here for the long haul.

“One of the challenges we have as a country is: the use of housing is twofold. It’s used as shelter, but it’s also used as an investment and too often it favours the use of housing as an investment vehicle.

“This is a challenge for us to think about how to better balance the need for shelter with the need for investor returns.”