News last week that confidence in the housing sector among young people has dipped recently is not surprising. Housing affordability for first home buyers is at its lowest level on record, lower even than in the late 1980’s when mortgage rates were at 16 and 17%.
If you are, say, in the 18 to 24-year-old age bracket and aspire to own a home, the hurdles are far higher than used to be the case.
Median house prices in Australian capital cities have increased by nearly 90% this decade so far and in regional Australia the increase is over 100%, with the largest chunk of growth occurring in a short, sharp burst around mid 2001 to late 2003.
In the process many budding young first home buyers have simply been priced out of the market. If you are a 21-year-old looking to buy a $350,000 house and borrowing the bulk of the money, you need an income of close to $60,000. That’s a big ask.
The substantial increase in house prices, which in the case of new housing was driven by massive increases in land prices, the additional pressure on mortgage repayments from higher interest rates, the increasing reliance of state governments on property taxation revenue, the erosion of the First Home Owners Grant, and very tight rental markets all represent barriers to entry for aspiring young home owners.
None of these barriers are insurmountable, but they can’t be broken down overnight either.
On the part of potential young home owners it will take a longer period of time to buy than previous generations, higher savings rates, and some would argue a scaling back in aspirations as to just what that first home will look like.
On the part of governments it will take a lowering of the cost of housing for first home buyers and an adequate supply of residential land. A national summit on housing affordability was held back in mid 2004 and yet in early 2007 affordability is lower than it was then.
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