Home ownership a distant dream for more FHBs

Almost a third fewer first home buyers are achieving home ownership than in previous decades, with researchers warning that it could lead to increased poverty if this persists, according to new research.

A report by the Australian Housing and Urban Research Institute (AHURI) revealed that the home ownership rate of FHBs born in the late 1980s is significantly less than it was for those born in previous decades, with the ownership rate still only 75 per cent of the rate in earlier decades, even after 20 years.

The research, titled ‘Transitions into home ownership: a quantitative assessment’ – undertaken for AHURI by researchers from University of Sydney and RMIT University – analyses the economic constraints over the last four decades on people’s ability to buy a home.

It showed that over the last 30 years, ownership rates for households at age 30 to 34 have declined substantially from 65 per cent of people born in the mid to late 1950s becoming homeowners by age 30 to 34, to only 45 per cent of people born in the mid to late 1980s.

The report warned that if millennials cannot catch up on buying a home, policymakers fear that Australia could see large falls in living standards and more poverty among people who have retired but are still renting.

The University of Sydney’s School of Economics’ Professor Stephen Whelan, one of the authors of the research, said: “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.”

Professor Whelan continued: “But more importantly, while this may represent in part simply a delay in younger Australians buying a home, our research shows that as these younger groups of people grow older, they are less likely to ‘catch up’ and buy a home.

“After 10 years the ownership rate ‘gap’ when comparing the 1950s cohort to the 1980s cohort (at age 40 to 44) has closed by less than half, and after 20 years (at age 50 to 54), the ownership rate is only around 75 per cent of the 1950s group.”

The deposit burden

One of the key barriers facing the younger cohort currently wanting to buy a home is saving enough to pay a deposit, Professor Whelan observed.

“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,” he said.

To overcome this hurdle, young FHBs are turning to the “bank of mum and dad”, which is estimated to be among the top 10 mortgage providers in Australia. The research showed that a transfer of $10,000 linked to nearly double the probability of a younger household buying their first home.

Parents represent an important source of finance for the younger generation either through cash transfer, by being able to save money while still living at home, or by parents acting as a loan guarantor.

“This allows younger Australians to accumulate savings in the order of $300–$400 per week that can be used to buy a home,” Professor Whelan said.

“Every additional year that a young person lives at home, as opposed to renting elsewhere, leads to an increase in the odds of transitioning into first-time home ownership of approximately 30 to 40 per cent. Similar to direct money transfers, this in-kind assistance provides an important, albeit informal, way into home ownership.”

The risks of inequality

However, Professor Whelan warned that intergenerational transfers from parents to children could increase the level of inequality in society, as wealth is linked with housing tenure in Australia.

Indeed, according to AHURI, between 2002 and 2018, the largest growth in wealth was observed among (often older) outright home owners, while renters (the least wealthy group), experienced very limited increases in wealth.

“Critically, familial support is unlikely to be available to all individuals. This highlights the need for well targeted government policies directed at potential first home buyers who might otherwise never be able to buy,” the report said.

“Policies that are designed to enable home ownership should be assessed not simply for their efficacy in enabling or facilitating home ownership, but also for their distributional implications.”

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