House prices are unaffordable for most first time homebuyers in Australia

Even before property prices started skyrocketing in the past year, buying a new home was already unaffordable for most people, new research has found.

For many young Aussies, the dream of home ownership feels like its moving completely out of reach with a huge surge in prices – but it turns out property wasn’t affordable even before the huge hikes.

In grim news, 40 per cent of first homebuyers in Sydney and Hobart were priced out of the market even before the eye-watering increases in house values, new research has revealed.

Earlier this month, ANZ economists warned that house prices are tipped to soar by a massive 17 per cent this year across our capital cities. In particular, Sydney and Perth housing prices are forecast to jump by double digits in 2021. Figures from CoreLogic show that house prices in Sydney alone are up 6 per cent in the last three months.

But research released by the National Housing Finance and Investment Corporation shows affordability issues have been growing for decades – revealing Aussie first homebuyers never had a chance.

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In Sydney, 40 per cent of first homebuyers were priced out even before property prices went nuts. Picture: NCA NewsWire/Gaye Gerard

Tough time finding property for those without deep pockets

It’s slim pickings for those who aren’t raking in the money. In Sydney and Hobart, the bottom 60 per cent of income earners can afford 10 to 20 per cent of homes on sale in those markets. If you earn in the bottom 40 per cent, less than 10 per cent of the market is affordable.

Things are more positive for those looking to snap up their first home in Melbourne, with the bottom 60 per cent of earners can afford 50 to 60 per cent of the property.

The research defined affordable as being able to meet mortgage repayments, which were 30 per cent or less of household disposable income.

The most affordable city for potential first homebuyers is Brisbane, where 40 per cent of income earners can afford to pay off a mortgage for around 60 to 70 per cent of properties in the market.

Australian Bureau of Statistics data has shown homeownership rates for people aged under 40 – the most likely group trying to buy their first home – are declining. Just 50 per cent of households within the 25-to-55 age bracket are expected to own a home by 2040, a drop of 10 per cent compared to figures from 1981.

However, government stimulus from state and federal schemes such as HomeBuilder, stamp duty concessions and first homeowner grants, which were worth up $85,000 for first homebuyers, along with low interest rates starved off worse affordability issues, according to the research.

RELATED:Family with $135,000 unable to buy in ‘worst’ suburbs

With low incomes in Hobart, just 20 per cent of homes are affordable to 80 per cent of first time home buyers. Picture: Eis Property

Current system doesn’t favour first homebuyers

Hal Pawson, a housing professor at the University of NSW, said he is not surprised that Australian property is already unaffordable, despite the government schemes and low interest rates contributing to a surge in house prices around Australia.

He said the current system has been unfairly skewed for decades towards those already on the property ladder.

The housing expert called for fundamental and “far-reaching” changes to be made to Australia’s tax system, which he said props up those who already own a home.

He said homeowners are effectively sitting on a “tax-free asset” and if it’s a rental investment they are given a “tax shelter” due to negative gearing, while no land tax on primary homes in most states is also a leg up.

Schemes like the first homeowners grant or stamp duty concessions are small scale solutions for first homebuyers to the larger disadvantages encountered, he said.

“What we have done is over many years – it’s not happened suddenly – is pumping up the whole market by the rather invisible help that tax system gives to property owners and that makes it more difficult for people to enter the sector,” he said. “More logical would be for the tax system to give more help for people to become homeowners and less help to be homes owners in the long term, especially when people have paid off a mortgage.

“I think in Australia and in a lot of other countries as well through the way the tax system works, we make home ownership even more attractive to be in – we almost bribe people to enter it – and it becomes more and more of a privilege to be a homeowner and it’s creating a society where not so many people can be part of that.”

Sydney’s waterfront properties are well out of reach for first homebuyers. Picture: NCA NewsWire/Gaye Gerard

Prof Pawson said changes to help first homebuyers aren’t going to happen any time soon.

“The big picture is housing policy a lot of the time is trying to do two different things that are really pulling against each other. One is to enable housing affordability but the other thing is home ownership as a vehicle to build wealth and those things pull against each other and are not compatible,” he said.

“The policy levers that enable housing to build wealth take preference over the desire to make housing more affordable and housing affordability is spoken about by policy makers and politicians but it doesn’t get precedence.”