Home ownership dearth helped along by Bank of Mum and Dad

Young people have been given a better shot at entering the property market, but ownership rates continue to slump.

Jacqueline Ilsley, her partner William and daughter Lacey, 5, bought their first home in Melbourne’s Sunbury earlier this year.

The Bank of Mum and Dad is swooping in to help young people into their first home as ownership rates continue to slump due to affordability pressures.

Homeownership rates of those in their early 30s have fallen dramatically over the past 40 years as rising property prices outpace wages, creating a deposit-saving hurdle many are struggling to overcome.

Around 65 per cent of those born in the late 1950s had purchased a home between the ages of 30 and 34, while that number fell to around 45 per cent among those born in the 1980s, according to new research from The Australian Housing and Urban Research Institute (AHURI) by researchers from the University of Sydney and RMIT University.

However, those given a leg up by their parents, whether through direct transfer of cash or in-kind, were able to get into the market more quickly. Relative to renters, an extra year of living in the family home increased the likelihood of owning a home by about 40 per cent.

University of Sydney School of Economics Professor Stephen Whelan said the decline in ownership of successive cohorts of Australians of all ages coincides with the decline in housing affordability.

“This fall in ownership rate has happened as house prices have nearly tripled, indicating that increasing house prices and falling affordability are associated with a delay in housing market entry for Australian households,” Prof Whelan said.

“One of the key constraints younger people are facing in wanting to buy a home today is the need to save enough to be able to pay a deposit or down payment”

“If we measure housing affordability by the time required to save for a deposit for a ‘typical’ dwelling for an ‘average’ household, we see that in markets such as Sydney and Melbourne, it now takes over six years.”

The generational divide of homeownership is quite pronounced. Today’s generation is dedicating less of their incomes as a percentage to repayments than their Baby Boomer and Gen X parents who paid interest rates of 17 per cent for a period through the early 1990s.

However, with property prices in Australia’s largest housing markets exceeding 12 times the average income, the time to save for a deposit is 10 years, 5 years longer than 30 years ago.

Lending by the Bank of Mum and Dad (BoMD) showed signs of slowing through the start of the year after spiking through 2021 when interest rates were at record lows, according to figures by Digital Finance Analytics (DFA).

However, DFA principal and analyst Martin North estimates the outstanding balance book of familial borrowing – totalling approximately $37.9bn – would make the BoMD the 10th largest lender in the country.

More first home buyers are testing the market once more, with NAB’s residential property confidence measure index 45 points over the past quarter. Australian Bureau of Statistics lending data shows the value of lending to the group rose substantially in New South Wales (up 8.9 per cent), Victoria (up 6.4 per cent), and the Australian Capital Territory (13 per cent) through May, but is still down over the year.

The federal government’s Home Guarantee Scheme- introduced in 2020 by the Morrison Government and expanded under Prime Minister Anthony Albanese – has proved popular with fist home buyers, allowing them to purchase with a low deposit.

The 2021 census revealed a slight upswing in ownership rates compared to 2016.