Introduction
Australia’s housing market space presents many significant hurdles for first-home buyers. Homeownership challenges in Australia are driven by inflation of housing prices, student debt, and strict guidelines for obtaining a mortgage.
Consequently, this article will explore the homeownership challenges in Australia and how it has become increasingly difficult to purchase or obtain a loan for one’s first-ever property. Through getting an understanding of these challenges, a buyer can develop their financial strategy for purchasing a home and advocate for better lending practices.
The Current Landscape and Homeownership Challenges in Australia
Increasing Housing Prices
Over the past 30 years, the property prices in Australia have grown exponentially. During the mid-1990’s, the average property cost 9.5 times the average household income. The homeownership rate at the time was at 59% for people aged 30-34.
In today’s landscape, the homeownership rate and prices have turned for the worst. This being that since the 1990’s, the average property now costs 17 times the average household income whereby between 30-34 the homeownership rate is below 50%. This is reinforced by a decline in ownership from 44%-36% for people aged 25-29. This has indicated that it has become increasingly difficult for the younger generation (millennials and Gen Z) to enter the housing market.
Factor’s Contributing to the Price Increase
Since the 1990’s, there has been an increase in the competition for mortgage lending. The introduction of non-bank lenders (e.g. mortgage brokers) had caused a disruption in the traditional banking model in receiving a mortgage. These entities had offered better interest rates, larger loans, and thus increased the demand for properties. This capital in the housing market had resulted in the increase of housing prices.
The persistent disbalance between the amount of housing and demand as continued to be an issue. The increase in urban centres, even itself hasn’t managed to keep pace, leading to fierce competition amongst buyers.
Burden of Student Debt
The HECS and HELP programs are critical in Australia’s higher education financing. While these schemes help students have access to education, they also impose significant obligations on graduates.
Recent policy developments such as the Job-Ready Graduate Scheme in 2021, had resulted in many university courses becoming more expensive. This leads to larger accumulation of HECS debt causing issues while borrowing with the bank.
Banks assesses their client’s financial health based on their income and existing debts. One’s HECS debt, often reaching tens of thousands of dollars, would diminish a buyer’s borrowing power. For instance, a debt of $50,000 would limit a graduate’s opportunities in the housing market.
In reinforcement, student debt can affect one’s confidence and ability to financially plan for their first property. The pressure of homeownership could be delayed given that students are seeking to pay off their student loans. Furthermore, policy shifts have lowered the income threshold of HECS repayments, meaning that a larger proportion of graduates have difficulty saving for a deposit as they’re paying off their debt at a lower income.
Australia’s Lending Practices
Australia’s lending practice while strict seek to enforce financial stability and protection for consumers. However, these same practices can pose significant for first-time buyers.
For example, comprehensive risk assessments seek to view a buyer’s financial history, income, credit checks, and existing debts. These affordability tests which view income and expenses, can drastically change the level of the loan obtained. Even a small debt, could impact the buyer’s eligibility for a loan. This can drive away graduates who have HECS debt as this is counted in the assessment.
Proposed Recommendations and their Solutions
- Government Incentives: Allowing young Australians to utilize their superannuation savings for home deposits has been a contentious issue. While it may provide immediate relief, it risks depleting retirement savings, leaving individuals financially vulnerable in the long term.
- Revisiting HECS Helps Assistance: Some lawmakers have proposed that banks consider excluding HECS/HELP debts from their lending assessments. While this could enhance borrowing capacity, it could also lead to increased risks in the housing market, as borrowers may take on more debt than they can manage.
- Accessing Superannuation for Deposits: Allowing young Australians to utilize their superannuation savings for home deposits has been a contentious issue. While it may provide immediate relief, it risks depleting retirement savings, leaving individuals financially vulnerable in the long term.
Economic Factors
The Australian economy has massively changed of the years, influencing the housing market. Factors including interest rates, inflation, and wage growth have significant set the landscape of being unable to purchase a property.
- Interest Rates: Changes in the Reserve Bank of Australia’s interest rates directly affect mortgage repayments. Rising rates can strain borrowers’ budgets, leading to further challenges in homeownership.
- Inflation and Cost of Living: Increasing living costs have eroded disposable income, making it harder for individuals to save for a deposit. As inflation rises, so too does the cost of goods and services, squeezing household budgets.
- Wage Growth Stagnation: While property prices have surged, wage growth has not kept pace. This disparity creates a widening gap between income levels and housing costs, complicating the path to homeownership.
Conclusion
The Australian housing market presents challenges for first-time buyers, driven by rising property prices, student debt, and stringent lending practices. Understanding these interrelated factors is essential for both potential homeowners and policymakers.
While a singular solution is unlikely to address these issues effectively. On going dialogue among policymakers, financial institutions, and aspiring homeowners—will be vital in creating a more accessible housing market. Through collaborative efforts, we can help young Australians achieve their dream of homeownership and foster a more equitable housing future.
This article is not meant to act as legal advice and serve the purpose of providing academically generalised information regarding the general principles of the difficulty of home ownership in Australia. If you require qualified legal advice on your potential sale or purchase of property, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today or make an enquiry here
