Priced out: Home buying hurdle nearly doubles in half a generation

First home buyers are more reliant than ever on the bank of mum and dad and government schemes to buy a house, experts say, as the required deposit near-doubled in the past decade.

In most capital cities in 2014, a 20 per cent deposit for a typical house was roughly $100,000, and higher in Sydney, Domain data showed, but that has since blown out.

A Sydney deposit was $158,000 for the city’s median house a decade ago, but has since risen above $325,000.

A Melbourne buyer would have needed a deposit of $119,000 in 2014, but would now need to find $206,000.

Brisbane buyers who could have earlier saved about $94,000 now face a hurdle of almost $185,000, and Perth buyers would also face a rise from about $123,000 to more than $155,000.

The steep deposit requirement has forced buyers to look for other ways to bridge the gap, or compromise on the type or location of property they can afford. Many buyers in the market now earn high incomes or have access to significant deposits.

The median house deposit required has jumped over the past decade.Credit: Nikki Short

With wage growth over the past 10 years at about 26 per cent, according to the Australian Bureau of Statistics, first home buyers were heavily dependent on family help and government schemes, PRD chief economist Dr Diaswati Mardiasmo said.

“Wages have definitely gone up, but they have not doubled or tripled – you need them to triple because if they were doubled, they just meet the requirement,” Mardiasmo said.

“It’s not just the deposit you need to consider, it’s building inspections, insurance and other fees.” The deposit figures also do not include stamp duty.

She said some first home buyers earned too much to meet the income caps for state and federal government assistance schemes – which would allow them to buy with as little as five per cent of the purchase price – but not enough to save a larger deposit.

“They’re stuck in a weird limbo,” Mardiasmo said. “They’re too rich for the government programs, but not rich enough to pay a 20 per cent deposit.”

If they did not have access to the bank of mum and dad, they were either unable to buy at all, or forced to pay lenders mortgage insurance (LMI), something Mardiasmo said came with risks.

“It costs you more money – particularly if there are any changes to your interest rate,” she said. “It can also negatively impact you if you want to refinance.”

Domain chief of research and economics Dr Nicola Powell said the data indicated that many first home buyers were not buying with a 20 per cent deposit, and were likely taking out LMI or relying on financial help.

Home buyers face a higher hurdle than in the past.Credit: Dion Georgopoulos

Either that, or they were buying units, which had recorded lower price growth than houses in most capitals, Powell said.

“First home buyers will go to the lower end of the market,” Powell said. “Units are much more affordable because we’ve been better at building units than we have done houses.”

However, she said more property options needed to be built, so people were not trying to buy a house with a relatively small windfall from selling a unit.

“There needs to be more stepping stones for people between the unit market and the house market – we still have a missing middle,” Powell said.

Despite this, she said units were a good investment in most cities, depending on the type and the location.

“Some units perform better than others. In our big cities, there are some really special heritage properties, but also boutique blocks with fewer units – those are highly sought after by buyers.”

Mardiasmo said the one upside of prices growing at this rate was that those who did manage to buy a property were likely to see their wealth grow quite quickly – even if it meant having to outlay a large deposit.

However, she added that it shouldn’t be so difficult to buy, and that governments should strongly consider changing caps and expanding shared equity schemes to make them more accessible.

The federal government recently raised the caps for its planned Help to Buy shared equity scheme, which has not yet passed parliament. It has also increased the First Home Guarantee caps since the scheme was introduced.

“They do revise the caps, but it’s based on straight numbers and not on individual circumstances,” she said. “Someone might be earning what seems like a high income, but the cost of other things like childcare, taking parental leave … can mean they still can’t afford a deposit.”