War on the Homefront: Nightmare for young homebuyers is only just beginning

Special investigation: The great Australian dream is over. Instead, young families are facing the nightmare scenario of never owning their own home due to two major factors. Watch the first episode of War on the Homefront here.

The nightmare for young home-hunters is set to dramatically worsen, with the pain of 12 interest rate rises now magnified by a shock property price surge across swathes of Sydney due to a migration boom and building bust that both have years to run.

In the first part of a special series, The Daily Telegraph shifts the spotlight away from auction winners and onto ordinary people who have begun to fear they will never finish better than second.

The series will also look through the lens of those struggling with record rises in rent, or life in a tent amid never-before-seen levels of homelessness statewide.

For would-be buyers, there is bewilderment as widespread predictions of property price falls of up to 10 per cent this year prove to be way off the mark.

The War on the Homefront series will look at families struggling to enter the housing market. Picture: NCA NewsWire / Max Mason-Hubers

AMP chief economist Shane Oliver, who had forecast such a drop, said home hunters were being hit with an unprecedented “double whammy” of a steeply rising market and a trebling in home-loan interest rates, from about two to six per cent.

“I don’t think there is a period in history where things have changed that dramatically in such a short space of time,” Dr Oliver said.

“There’s an element of disbelief about it,” because consistent rate hikes typically cause a sustained price decline.

Shane Oliver said home hunters are being hit with a “double whammy”.

According to new data from realestate.com.au, house values in areas such as Hornsby and Parramatta have instead leapt by nearly 10 per cent.

“The growth we’ve seen this year has been very surprising,” said realestate.com.au economic research head Cameron Kusher.

“It’s almost been a complete 180 in terms of the direction of the market.”

Sydneywide, house prices are up 6.4 per cent so far in 2023 while units have gained 5.1 per cent. CBA economists expect a 10 per cent increase for the full calendar year.

A couple who have to borrow $1.1 million for their first home, instead of $1m, face paying an $675 a month in repayments — if a lender will extend the extra credit.

According to AMP’s Dr Oliver, a key driver of the price spike has been the leap in migration.

“You’ve had this huge surge in population when property markets were already tight, which has led to an even worse supply side shortfall and swamped the negative impact from higher interest rates,” he said.

The federal government expects 650,000 people to move to Australia this financial year and next.

Outgoing RBA Governor Philip Lowe said there was a significant cap in population growth and new dwellings. Picture: NCA NewsWire / Nikki Short

Net migration is already estimated to be 20 per cent higher than any comparable country.

Australia is expected attract more foreign millionaires than any other nation in 2023 — about 5200.

Nearly 30 per cent of all arrivals choose to live in Sydney.

That implies close to 200,000 additional people will join the battle for accommodation.

The Australian population has grown 2.5 cent this year while the number of dwellings in the country has increased by only 1.5 per cent, Philip Lowe said last month when he was still the RBA boss.

“There’s a big gap there,” Dr Lowe added. “With strong demand, relative to supply, rents go up, and, when rents go up, prices tend to go up.”

Premier Chris Minns told The Telegraph he believed there is an overall benefit from high migration, because it increases the number of skilled workers, including for the building industry.

NSW Premier Chris Minns said the chief problem is a lack of supply. Picture: Justin Lloyd

Mr Minns said the chief problem was a lack of supply.

“As a result you are just seeing an escalation in prices that is almost not related to the wider economic conditions,” he said.

Briefings Mr Minns received after coming to office showed the state was on track to add just 36,000 homes annually until 2029.

Under a recent deal with the Albanese government, the new target is 75,000. Canberra has promised $915 million in extra payments over five years if that happens.

Mr Minns told The Telegraph that 75,000 was a “big” figure and his first goal was to increase the number of completed homes per 1000 people from six a year to more than eight, which is the level in Victoria; Queensland produces nine.

“Despite the fact we’ve got the highest housing prices, we’ve got the largest increase in rents, we’ve got the biggest population (and) we’ve got the largest number of inbound immigrants over the next two years, we’re last on the eastern seaboard when it comes to completions,” the Premier said. “If we don’t get that up, young people have really got no hope in NSW.”

Realestate.com.au’s Mr Kusher said a further explanation for the surprise rise in prices this year was that interest rates were now near the “peak of the cycle”, echoing a view Dr Lowe advanced before he went out the RBA door.

Last month the then governor commented: “People are saying, ‘If I can afford the current rate of repayments and as long as I keep my job, there’s going to be strong demand for housing going forward, and it’s a good time to buy property’.”

He continued: “I’m not providing financial advice, but that’s the perception that many people have – that the interest rate peak is near or at hand so now’s the time to get in.”

The RBA declined interview requests. Federal Housing and Homelessness Minister Julie Collins and Treasurer Jim Chalmers did not respond to repeated requests to be interviewed.