The Great Australian Dream of homeownership has become a nightmare for millions – and is only set to get worse

The so-called ‘Great Australian Dream’ of owning your own home has become a nightmare for millions of people – and is only set to get worse this year.

In previous generations, buying a pile of bricks was an achievement typically achieved in one’s late 20s to mid-30s, coinciding with starting a family and rising the ranks at work.

But these days, someone within that demographic is much more likely to be renting, forking out up to half their salary on a lease, while also grappling with flat wages growth and a cost-of-living crisis.

In just three decades, home ownership rates for those aged between 30 and 34 has collapsed from 65 per cent to just 45 per cent, Professor Stephen Whelan from the School of Economics at the University of Sydney 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,” Mr Whelan said.

But alarmingly, research indicates many of those Aussies don’t merely ‘catch up’ later and buy a home when they get older, he said.

There are fears among policymakers that this trend could see large falls in living standards and increases in poverty over time as people retire but still need to rent a home.

The cost crisis getting worse

Those trying to buy their first home in 2023 faced intense competition, limited options and painful price pressures.

Across the year, home prices at a national level increased by more than five per cent and surged by about 10 per cent across the capital cities.

That’s despite rapidly rising interest rates, a cost-of-living crisis and record home values.

Researchers and economists at each of the big-four banks all predict continued price growth in the year ahead, making it harder for would-be buyers to get a foot in the door.

Data house PropTrack expects a national growth rate of up to four per cent while the Commonwealth Bank expects prices to edge upwards by five per cent.

At a national level, Westpac expects home prices to rise six per cent across the year, with the biggest increases seen in Perth (10 per cent), Brisbane (eight per cent), Sydney (six per cent), and Adelaide (six per cent).

ANZ is also tipping a six per cent increase in home values at a national level, and the NAB is forecasting an increase in home prices across the capital cities of 5.4 per cent this year.

Fewer people own their own home

The rate of homeownership across the country has fallen steadily over the years but has plummeted among younger cohorts.

Back in 1971, 64 per cent of Australians aged between 30 and 34 owned a home, while as of the 2012 Census, that figure sits much lower at 50 per cent, ABS data shows.

Among those aged between 25 and 29, the proportion who own the place they call home has plunged by 14 per cent over the same time period to 36 per cent.

“To further illustrate these changes in home ownership rates, data can be presented by birth cohorts,” a report by the Australian institute of Health and Welfare last year read.

“Home ownership rates of those born during 1947 and 1951 increased from 54 per cent in 1976 (when they were aged 25-29) to 82 per cent 45 years later in 2021 (when they were aged 70-74).

“By contrast, the home ownership rate of those born during 1992 and 1996 was 36 per cent in 2021 (when they were aged 25-29), 18 percentage points lower than the 1947-1951 cohort at the same age.”

As a result, more and more people are renting the place the live, but the impact has been disproportionate on younger Aussies in recent years.

“There has been a sharper increase in the proportion of young Australians renting compared with older Australians,” the AIHW report read.

Impossible to save a deposit

One of the biggest barriers to homeownership among younger Australians is coming up with the deposit required to obtain a home loan.

Typically, first-time buyers need to save 20 per cent of the purchase price of a home to satisfy lending criteria – something not many can achieve.

To put that into perspective, during the Covid pandemic, capital city home prices surged by about 20 per cent, meaning those in the process of saving a deposit were delivered a staggering blow.

Across 2023, national dwelling values ticked upward by almost 10 per cent, hiking the amount needed to be saved.

At the same time, many hopeful homebuyers grappled with skyrocketing rental prices.

PropTrack data released today shows rent prices nationally leapt by 11.5 per cent last year, while across the major capital cities, they were 13.2 per cent higher.

“Rents are growing at double-digit rates in many capitals, with Sydney, Melbourne and especially Perth renters facing very strong growth,” PropTrack economist Angus Moore said.

Analysis by financial comparison website finder.com.au showed it takes at least 12 years for the typical first-time buyer to scrape together an adequate deposit.

Obviously, the situation is much worse in more expensive housing markets, with the time needed in Sydney blowing out to a staggering 20 years, the analysis found.

Mum and dad’s help crucial

The so-called ‘bank of mum and dad’ has become crucial for those hoping to enter the real estate market.

“As the income to house price ratio continued to expand during the pandemic, first-home buyers reported taking longer to save up a deposit,” UNSW Associate Professor Chyi Lin Lee said.

“Meanwhile, investors, particularly those already in the market who benefited from soaring house prices, can refinance for another purchase and are seen to outbid [first-timers] easily.”

Research by UNSW Sydney published in the academic journal Buildings last year probed the purchasing habits of recent first-home buyers to plot their path to homeownership.

It found that 21 per cent received a cash gift from their parents in order to help fund the deposit required to take out a mortgage.

Another 12 per cent needed mum and dad to go guarantor on their loan, the study found.

Just one-in-five first-time buyers were able to fund their 20 per cent deposit on their own, it was also revealed.

“Even before the pandemic, many first-home buyers were finding it difficult to get into the market, with many predicting the situation will likely get worse,” Mr Lee said.

“This is driving a fear of missing out, resulting in many taking on higher levels of debt, rushing into purchases without completing thorough due diligence, relocating for affordability reasons or reducing their expectations for their first property.”

A problem brewing for years

In a submission to a Senate inquiry into the housing market last year, think tank The Grattan Institute pointed out that the country’s housing crisis has been building for decades.

“But the pandemic has made it worse,” authors Brendan Coates and Joey Moloney noted.

“Rental vacancy rates are at record lows and asking rents have risen rapidly. The pandemic and the ensuing work-from-home revolution have spurred a ‘race for space’.

“People want more space to themselves, either by taking an extra bedroom as a home office or by moving out of the family home or a share house. The result is that fewer people are living in each home, meaning we need more homes just to house the same number of people.”

This dramatic shift in how Australians live coincided with a record-high increase to migration rates, with hundreds of thousands of people arriving in a short space of time.

Urgent action demanded

The big issue driving price rises for both renters and would-be buyers is a lack of adequate housing supply coming into the market, Mr Coates and Mr Moloney noted.

“This is primarily a problem for states governments. They set the overall framework for land and housing supply, and they govern the local councils that assess most development applications.”

Last year, National Cabinet agreed to an increase of the Commonwealth’s goal to build one million new homes over the coming five years, adding 200,000 extra dwellings to that target.

As part of the accord, states and territories will be incentivised to significantly lift their games when it comes to supply.

But the cost and time required to build a home means there’s no quick fix to the problem plaguing those simply trying to put an affordable roof over their heads.

The majority of Australians recognise much more needs to be done to make housing fairer.

Research released by the Australia Institute last year showed “overwhelming support” for rent price caps and a significant investment in affordable housing.

“Almost nine-in-ten Australians support more money being spent directly on affordable housing,” Richard Dennis, executive director of the Australia Institute, said.

“Three-quarters want the federal government to work with the states and territories to implement rent caps across the country.”

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