Things were different the last time first home buyer numbers plunged to a record low in the spring of 2003. As property prices soared that year, housing affordability took centre stage in politics.
Under pressure to help young people "locked out" of the market, prime minister John Howard set up a home ownership taskforce to come up with solutions. Mark Latham, who became opposition leader in late 2003, went on the attack over housing affordability and mooted some memorable policy responses, including a $3000 ''nest egg'' saving account for newborns.
Fast forward to the present and the share of first home buyers in Australia is even smaller than in 2003 - in August they made up just one in 15 borrowers in NSW, and one in eight borrowers in Victoria. And yet housing affordability is hardly registering in political debate.
First home buyers are giving up at a time when conditions are relatively favourable for them. Interest rates are at historic lows and mortgage repayments as a proportion of average disposable incomes are lower now than for most of the past 15 years. Some economists say these are the best home buying conditions in years.
Some first-time buyers are being outbid by the rush of investors who have jumped into housing on the hope of quick capital gains.
But I think many are baulking at the deposit hurdle.
That hurdle has been raised considerably because house prices have risen faster than incomes over time - from 2.5 times the average disposable household income in 1985 to about 4.5 times last year, the Reserve Bank estimates.
Low interest rates have allowed borrowers to service the bigger loans made necessary by those high price rises. But low borrowing costs have not helped make saving for a deposit any easier.
The jump in house prices relative to income means it's harder than ever to scrape together a home deposit big enough to allow manageable mortgage repayments.
Research by economist Judy Yates, an associate professor at Sydney University, shows that for most of the 1980s, home buyers needed to have saved about the equivalent of a full year's average income to secure a loan they could comfortably repay that was still large enough to purchase a median-priced dwelling. By 2010, the corresponding deposit size had increased to roughly four times average annual income.
The latest surge in Sydney house prices - 13.2 per cent so far this year according to RP Data-Rismark - has lifted the deposit hurdle further. Arab Bank Australia analyst David Scutt estimates that property price gains in this year alone have pushed the standard 20 per cent deposit on the average Sydney house up by nearly $12,700. That's enough to dampen the resolve of any saver.
Those who never own a home miss out on the massive tax benefits governments give to owner occupiers - about $35 billion a year, a recent Grattan Institute report shows.
They also miss out on the $6.8 billion in tax benefits that flow to property investors annually. These policies will become harder to justify if the proportion of renters keeps growing.
Buying a home has never felt so out of reach for first home buyers. But if you think a boost to the first home owner grant will help you out then you should think again.
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.”
The beginning of Charles Dickens’ classic A Tale of Two Cities appears a particularly apt description of Australia’s housing market. On one hand we have home owners and investors receiving high returns on capital gains and rents but on the other hand many prospective first home buyers have given up the dream of owning their own home.
Data from the Australian Bureau of Statistics show that first home buyer activity has never been slower in Australia’s three largest states. In New South Wales, first home buyers accounted for just 7.2 per cent of all loan applications in September on a seasonally-adjusted basis; well below the post-1999 average of 22.5 per cent. The situation is not much better in Victoria (14.4 per cent) or Queensland (11.5 per cent). Nationally the share was at its lowest level in the series’ 22 year history.
With first home buyers priced out of the market, housing affordability will become an increasingly hot topic for governments at the federal and state levels. Historically this has always meant an increase to the first home owner grant.
Earlier this week Tasmanian Premier Lara Giddings announced a doubling of Tasmania’s first home owner grant to $30,000 or around 10 per cent of the median dwelling price in Hobart. In Western Australia, the state government has increased the first home owner grant for purchasing or constructing new homes, although they also reduced the first home owner grant for purchasing established homes. The current trend for first home owner grant is to direct first home buyers towards new homes rather than established ones but that may change if first home buyers continue to be cautious.
Unfortunately the first home owner grant does not work. It is one of Australia’s greatest rorts. Rather than improve housing affordability, the benefits of the first home owner grant accrue directly towards home owners and investors. Effectively it is a government mandated wealth redistribution vehicle that benefits the middle and upper-class.
A boost to the first home owner grant does increase lending activity, with first home buyers – rather than waiting – bringing forth their demand to take advantage of the higher grant before it is unwound. This is a good thing for the property industry but rarely works out so well for the first home buyer.
The extra first home buyer demand clashes with limited housing supply to drive up prices and reduce the realised benefit of the first home owner grant. When the extra grant is unwound, first home buyer demand is left depleted and non-first home buyer demand tends to fall with it. The policy contributes to dwelling price volatility, a quick rise while it is in place followed by slow growth or falling prices after it is removed.
We saw this in full force during 2009 and 2010. First home buyers were effectively tricked into entering the market due to unprecedented piles of free cash. After the boost was removed they found that the property they had always dreamed of was not worth what they thought it was.
If state and federal governments want to address housing affordability they should do so with a critical eye towards the middle and upper-class welfare that constitutes Australian housing policy. The Grattan Institute, in its recent Renovating Housing Policy report, found that owner-occupiers and investors received over 90 per cent of government funding directed towards the housing market. Perhaps more importantly it found that these policies did nothing to increase home ownership rates.
Housing affordability for first home buyers needs to be addressed but a fresh approach is required. Changes to the first home owner grant will do nothing to improve housing affordability and readers should remember this when state and federal governments try to fool them otherwise.
It's a lament for a bygone era. Those of us who grew up in houses with big backyards are nostalgic about it. We want the same for our children. But the Hong Kong-ification of Melbourne and Sydney means only the wealthy can buy well-located property with big yards. There is a mental adjustment required. We must resign ourselves to the fact that we can't give our children the space our parents gave us.
It is a reasonable point to make that it is now more difficult to save for an equivalent deposit. The other factor to consider is that the scope for IRs falling in the future is now more limited than in the past so that your repayments will probably not fall significantly in the future. Those that borrowed when IRs were higher have been given a bonus in terms of reduced repayments now.
I’ll admit it. This time a year ago I was excited. I was interviewing the Federal Housing Minister, Tanya Plibersek, who was still finding her feet in her new portfolio.
After years of inflationary housing policy from the Liberal Party, the Rudd Government was taking a different approach to housing unaffordability.
They were introducing First Home Saver Accounts, which encouraged first homebuyers to save rather then spend.
I’m a huge fan of these accounts. So much so that I went out on a limb and encouraged my younger readers to set them up – which is what led me to speak to the housing minister.
During that interview I asked the minister: “Can you confirm that there will be no increase in the First Home Buyers Grant?”
Plibersek responded: “No there won’t be. There won’t be an increase in the First Home Buyers Grant, because we’ve seen from experience what happens when you provide a grant like that – or increase it – is that it goes straight into the pocket of the seller.”
Spot on.
Tripling the grant
Then, a few weeks later the Government tripled the $7000 grant under the existing First Home Buyers Grant if first homebuyers signed a contract on a newly built home before June 30 this year. It also doubled the grant to $14,000 for established homes.
Our discussion this week was what Laurie Oakes would describe as “robust”.
While the original interview was spent spruiking the First Home Saver Account, it has become clear that the rosy
Government projections at the time of 220,000 accounts opened by 2009, and 730,000 by 2011, aren’t likely to be met.
It’s no newsflash that today the majority of first homebuyers are choosing to take the easy money on offer, rather than starting up the savings plan.
Yet, as I argued in the original interview, “having young people establish savings skills before they borrowed the biggest sum of their lives is good training for meeting the monthly mortgage payments”.
Plibersek was adamant that the boosting of the bonus had achieved its aim: “It is our absolute intention for them (first homebuyers) to bring their purchases forward.”
She was clear that boosting the bonus was a stimulus measure in response to the global financial crisis.
OK. We’ve established that the boosting of the grant was one of the Government’s direct responses to combating the worst financial crisis since the Great Depression.
“We found that many first homebuyers had a deposit gap, which stopped them from getting into their homes, and this boost helps them with that,” said the minister.
Dangerous policy
At this point in the interview, I started raising my voice like a tabloid shock jock. How does encouraging some of the most financially illiterate people in our community to purchase a property with little to no savings at a time of such financial instability “help” them in the long run?
It becomes dangerous policy when you consider the likelihood that some of them will lose their jobs as a result of the measures the stimulus is actually trying to combat.
The minister countered that “in many instances these people are paying lower mortgage repayments than they were paying in rent – although we have always encouraged first homebuyers to do their calculations and make sure they can comfortably afford the purchase”.
(Yes, I’m sure the US Government urged caution to its marginal borrowers – and look how well that turned out! And that Government wasn’t giving them more money than the jackpot at the pokies.)
Sure, our first homebuyers are paying low mortgage repayments now, but it’s a 25-year commitment in some of the worst financial years we’re likely to experience.
I am going to throw a spanner in the works and tell you why these people cant get a deposit together. Its not because they are renting, it's because they are living this life of luxury - dinners out, shopping, going nuts at the weekend, and the clincher - wanting to buy way way out of their range.
I get that you want to live in the inner west, but be realistic people. My father gave me the best advice, start at the bottom. My husband and I saved our deposit in the worst part of the GFC when it was so damn hard to get a loan. We had to have 10%. We managed to earn 50k, rent, go overseas and save for our deposit. We sacrificed our weekend coffee, dinners out and made some sacrifices to save and afford what we could. We didn't get a hand out like so many friends of ours.
And we brought a house that we could afford, yes its an hour from the city, but I have a backyard, a house and a life, and I can afford it. The problem with first home buyers is they don't want to compromise, buy a house move west, build equity for a couple of years then get your inner west townhouse and rent out the other... it's not rocket science!
The other piece of sage advice from my father - just get your foot in the door, it doesn't matter where, you can always sell or rent, but once you are in you are in.
And Investors are betting the backyard and all the debt they can borrow in the belief that property prices only go up. I'm sorry, but if what we are experiencing in Sydney is not a bubble then I don't know what one is. I spent 2008 in the U.S and Europe and saw things crash from property prices 6x income. I fear a lot of people who worked all their life to earn their super will watch it all disappear one of these days just for the sake of negative gearing. It is not a tax break,, it means you made a lousy investment where the rent can't pay the mortgage and taxpayers are flipping the bill.
One quick question, if Gen Y is living at their parents longer than ever, and only investors are buying property, shouldn't that mean there is adequate supply of rentals in the market?
It's a lament for a bygone era. Those of us who grew up in houses with big backyards are nostalgic about it. We want the same for our children. But the Hong Kong-ification of Melbourne and Sydney means only the wealthy can buy well-located property with big yards. There is a mental adjustment required. We must resign ourselves to the fact that we can't give our children the space our parents gave us.
I liked your original post better, but this ones good too! Go Hong Kong!
Shadow
13 Nov 2013, 11:29 AM
By whom? Links please...
Margaret, clearly you don't need more links, you're the biggest macrobusiness fanatic on the forum.
I’ll admit it. This time a year ago I was excited. I was interviewing the Federal Housing Minister, Tanya Plibersek, who was still finding her feet in her new portfolio.
After years of inflationary housing policy from the Liberal Party, the Rudd Government was taking a different approach to housing unaffordability.
They were introducing First Home Saver Accounts, which encouraged first homebuyers to save rather then spend.
I’m a huge fan of these accounts. So much so that I went out on a limb and encouraged my younger readers to set them up – which is what led me to speak to the housing minister.
During that interview I asked the minister: “Can you confirm that there will be no increase in the First Home Buyers Grant?”
Plibersek responded: “No there won’t be. There won’t be an increase in the First Home Buyers Grant, because we’ve seen from experience what happens when you provide a grant like that – or increase it – is that it goes straight into the pocket of the seller.”
Spot on.
Tripling the grant
Then, a few weeks later the Government tripled the $7000 grant under the existing First Home Buyers Grant if first homebuyers signed a contract on a newly built home before June 30 this year. It also doubled the grant to $14,000 for established homes.
Our discussion this week was what Laurie Oakes would describe as “robust”.
While the original interview was spent spruiking the First Home Saver Account, it has become clear that the rosy
Government projections at the time of 220,000 accounts opened by 2009, and 730,000 by 2011, aren’t likely to be met.
It’s no newsflash that today the majority of first homebuyers are choosing to take the easy money on offer, rather than starting up the savings plan.
Yet, as I argued in the original interview, “having young people establish savings skills before they borrowed the biggest sum of their lives is good training for meeting the monthly mortgage payments”.
Plibersek was adamant that the boosting of the bonus had achieved its aim: “It is our absolute intention for them (first homebuyers) to bring their purchases forward.”
She was clear that boosting the bonus was a stimulus measure in response to the global financial crisis.
OK. We’ve established that the boosting of the grant was one of the Government’s direct responses to combating the worst financial crisis since the Great Depression.
“We found that many first homebuyers had a deposit gap, which stopped them from getting into their homes, and this boost helps them with that,” said the minister.
Dangerous policy
At this point in the interview, I started raising my voice like a tabloid shock jock. How does encouraging some of the most financially illiterate people in our community to purchase a property with little to no savings at a time of such financial instability “help” them in the long run?
It becomes dangerous policy when you consider the likelihood that some of them will lose their jobs as a result of the measures the stimulus is actually trying to combat.
The minister countered that “in many instances these people are paying lower mortgage repayments than they were paying in rent – although we have always encouraged first homebuyers to do their calculations and make sure they can comfortably afford the purchase”.
(Yes, I’m sure the US Government urged caution to its marginal borrowers – and look how well that turned out! And that Government wasn’t giving them more money than the jackpot at the pokies.)
Sure, our first homebuyers are paying low mortgage repayments now, but it’s a 25-year commitment in some of the worst financial years we’re likely to experience.
The trick is, as peter fraser has generously pointed out, is to stop asking for an increase in the First Home Buyers Grant! Everyone knows that FHBGs have just ramped up house prices.
What you need to do is ask for a stamp duty discount or lobby to abolish stamp duty altogether.
The exact same thing is achieved but in a much snakier way! Woo!
Common Sense
13 Nov 2013, 12:39 PM
I am going to throw a spanner in the works and tell you why these people cant get a deposit together. Its not because they are renting, it's because they are living this life of luxury - dinners out, shopping, going nuts at the weekend, and the clincher - wanting to buy way way out of their range.
I get that you want to live in the inner west, but be realistic people. My father gave me the best advice, start at the bottom. My husband and I saved our deposit in the worst part of the GFC when it was so damn hard to get a loan. We had to have 10%. We managed to earn 50k, rent, go overseas and save for our deposit. We sacrificed our weekend coffee, dinners out and made some sacrifices to save and afford what we could. We didn't get a hand out like so many friends of ours.
And we brought a house that we could afford, yes its an hour from the city, but I have a backyard, a house and a life, and I can afford it. The problem with first home buyers is they don't want to compromise, buy a house move west, build equity for a couple of years then get your inner west townhouse and rent out the other... it's not rocket science!
The other piece of sage advice from my father - just get your foot in the door, it doesn't matter where, you can always sell or rent, but once you are in you are in.
You think repeating this bullshit over and over again is going to make it any truer? (And don't these rants normally have to make references to i-phones or i-pads?) These real-estate and financial industries of ours, they sure do love molesting that confidence fairy don't they?
'You can do it too! Stop whining kids - build equity! It's hard but theres no other choice!'
There are lots of choices.
Researching property bubbles around the world would be a good one to make, especially if you're considering committing to ours. Some probing into the area would probably help you gauge just where our market is heading.
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy