First home borrowers are at record lows as they face skyrocketing property prices, the struggle to save a deposit and investor competition, writes Simon Johanson.
A generation of young Australians is being squeezed out of the housing market.
Skyrocketing house prices and the difficulty of saving a deposit are putting the great Australian home-owning dream out of the reach of many – despite the best buying conditions in years, with interest rates plummeting to historic lows and low unemployment.
Sunaina Nundeekasen, a 28-year-old Sydney doctor, has worked for the past four years and still not managed to save a large enough deposit.
‘‘Even though I do get quite a good salary it’s still going to be pretty tough,’’ she says. ‘‘When I went to the bank and discussed mortgages . . . it became apparent there was no way I was going to be able to do it just by myself.’’
She is not alone in her struggle.
The number of loans to NSW’s first timers and young families fell to their lowest level ever in January, when just 773 dwellings were financed.
All year, first home borrowers have bumped along the bottom at around 1000 per month, a stark contrast to March 2009 when monthly first home loans hit an all-time peak of 6241.
The situation is similar in Victoria, where first home loans hit a high in May 2009 when they reached 29.5 per cent of all lending, the most since records began in 1991. Now, just one in eight are first time borrowers.
When first home buyers really hit their peak the standard variable interest rate was at a low, around 5.8 per cent, similar to today’s 5.95 per cent. But unlike 2009, interest rates now are not as attractive to first home buyers.
Instead of helping young people achieve their housing dream, they are spurring a charge of investors into the market.
‘‘It’s demoralising competing against investors who are using property to bolster their super fund. They’ve got far deeper pockets,’’ says first home buyer Byron Slessar, 27. Across Australia people like Byron are giving up.
In September just 12.5 per cent of all loans went to first home buyers, the lowest since records began and well below the average of 18.5 per cent.
Some blame their difficulties on rising house prices and affordability issues, others on cuts to government incentives.
Prices are soaring in Sydney, up 13.2 per cent over the year according to RP Data, while Melbourne is again at the beginning of a new growth cycle. ‘‘The change in first home buyer grants in some of the bigger states has made it more difficult for first home buyers to get in,’’ says RFi’s research director, Alan Shields.
Four years ago governments doubled the deposits of first home buyers with generous subsidies following the global financial crisis-induced credit crunch.
More recently those grants were cut and refocused on buyers purchasing new, rather than existing, homes.
For Byron Slessar, who this week jointly purchased a property in Sydney’s inner-west with his brother Charles, 25, the grants were no help. ‘‘It’s got to be for a property under $600,000. In Sydney’s there’s not a huge amount of them,’’ he said.
The Slessar brothers managed to afford $829,000 for a two bedroom terrace in Erskineville’s MacDonald Street by banding together and combining their deposit, purchasing power and loan repayments.
‘‘I’ve been working for four years and saving all that time. Charles has been saving for two or three years,’’ Mr Slessar says.
What young people face now is a ‘‘renovated Australian home owning dream’’, says Ipsos Mackay research director Rebecca Huntley.
They need to be less fussy about housing types, maybe buy a property just to get a toehold in the market then rent and live somewhere else if they need to, and are frequently falling back on mum and dad for financial or other support, Ms Huntley says.
‘‘We are seeing some downgraded ambitions.’’
In the past most wanted a free-standing home, now they make do with a studio apartment. The majority, nonetheless, still want to own rather than rent.
‘‘There are some innovative and flexible ways young people are approaching what that first home might look like and who might help them,’’ she says.
‘‘They’re micro trends but cumulatively . . . it’s a sign of people trying to respond to a challenging situation.’’
Some young buyers get more help than others.
‘‘Out of the last six properties we have sold, three were bought by mum and dad for their kids,’’ says Tom McCarthy, a director at Melbourne agents Biggin & Scott.
Support from parents is the only way Ms Nundeekasen will get her first home.
They have agreed to fund half the deposit and act as guarantors.
‘‘I don’t know how anyone can afford to get their own place otherwise,’’ she says.
Mr McCarthy, whose agency covers inner-city Prahran, says the lack of first home buyers is being driven by tighter bank lending practices. ‘‘Affordability is pretty good but banks have tightened up their lending,’’ he says.
They are far more conservative in their property valuations and that requires buyers to tip in a much larger deposit. There’s also a lack of competition from smaller lenders.
‘‘One of the unintended consequences of . . . the GFC with the banks is that they have been able to run out of town all other lenders and monopolise the marketplace,’’ Mr McCarthy says.
Negative gearing and capital gains tax are also factors affecting affordability, says Jacqui Phillips, spokeswoman for Australians for Affordable Housing.
They drive investors to purchase established houses, push up prices and prop up second or third home buyers at the expense of first timers and new home construction, she maintains.
‘‘The solution that will get to the real cause of house price inflation and the exclusion of first home owners lies in policy . . . including tax settings and in particular negative gearing and capital gains tax,’’ she says.
On Melbourne’s outskirts, traditionally first home buyer territory, activity on housing estates is beginning to pick up.
‘‘I don’t think they’ve given up,’’ says National Land Survey Program director Colin Keane. ‘‘There’s just no financial incentive for them to act. They’re hoping the government will come in with grants.’’
Once they realise that won’t happen, with land prices now below $200,000 per lot, he believes they will begin to react.