Home ownership, the quintessential aspiration for Aussies everywhere, is said to be slipping even further from the grasp of younger generations.
Debates rage daily in the media as to who’s had it the toughest when it comes to realising the Great Australian Dream…beleaguered baby boomers who grew up in the shadows of a Great Depression and had to rebuild their fortunes from the ground up. Or the new, fresh faced millennials, who are feeling the strain of exponentially rising property prices.
While both groups have faced a vastly different set of prevailing economic and market conditions and circumstances, it seems the one thing required to break into real estate – saving a healthy deposit – is the big differentiator these days.
Then there’s the more complex lending landscape we now find ourselves in, along with additional costs to account for, such as stamp duty.
Jumping through the deposit hoops
Head of research with CoreLogic Tim Lawless, recently told Business Insider Australia that 90% of millennials believe buying their first home and braking into today’s housing market will be an uphill battle.
“This year, Australians said the deposit is the most difficult component of getting into the market, keeping in mind lenders are generally looking for a 20% deposit,” he explained.
With the continuing dichotomy of more jobs seemingly being created than ever before, combined with what can only be described as anaemic wage growth, saving such a hefty stash of cash is certainly proving problematic.
Today’s dwelling, value-to-household income ratio is sitting at 6.5:1, meaning a typical household spends 6.5 times their gross annual income to acquire a median-priced house at today’s standard $524,000.
Compare this to just two decades ago, where “a typical ratio was around four and a half times,” according to Lawless.
“Off that measure alone, it’s clear that getting into the market has become a bigger issue than it was.”
CoreLogic’s recent Affordability report revealed that one in three Australians with an income of less than $50,000, feel they would not be able to raise more than a 5% deposit at best, with the millennial demographic the most exposed to risk.
Breaking in is hard to do…but…
Although the deposit hurdle is a very real one for today’s would-be homeowners, many contend that when you include the current (and seemingly never-ending) low interest rate environment in the overall equation, things become less black and white around the affordability debate.
Borrowers in the 1990s were being charged rates well into the high teens on their home loans, compared to the average of around 3 to 4% in today’s market.
“Boomers were paying down their mortgages at the same time that interest rates were at 17%,” says Lawless. “The asking prices for those houses was obviously much lower but once you bought, servicing your mortgage was a little bit more challenging.”
Same, but different
Given the many variables that need to be considered when contemplating whether our grandparents had it tougher than the “young folk” of today, it’s virtually impossible to conclude that millennials are confronting a worsening housing affordability crisis than previous generations.
It’s true however, that there are many more perceived hurdles these days, including a significant tightening of credit parameters and protocols by lenders, as well as increased focus on borrower spending behaviour by the banks.
So, with 86% of millennials still rating home ownership as an important aspiration, what’s the answer?
CoreLogic International CEO Lisa Claes says potential solutions need to go beyond things like stamp duty concessions and increased first-home buyer grants. And that governments need to start considering the social implications of affordability as well.
She says foundational concerns such as transport infrastructure to carry people from more affordable, outer urban regions to employment hot spots is just one way the government can start to better address the alleged inequality of our housing markets.
“Policymakers need to acknowledge that and continue to explore structural, long-term solutions to the affordability challenge,” she says.
Ultimately though, as Lawless is quick to point out, getting into the housing market has never been an easy proposition.
“I’ve been a property analyst for nearly 20 years,” he says, “And I can honestly say affordability has always been an issue.”