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Australian Housing Market: Can Young People Become Homeowners

Being a homeowner is a dream many young people would love to turn into reality. While some view it as a chance to prove their worth and finally leave their parent's house, for others, it is the only way to provide comfortable living conditions for their families. Unfortunately, due to high property prices, this dream often stays in the sphere of unfulfilled possibilities.

Who or what is to blame for this situation remains a question of debate. For instance, the recent coronavirus pandemic is one of the factors that cannot be overlooked, as it left a significant mark on Australia's economy — including its housing market.

The causes of rising property prices notwithstanding, Australians are left to deal with the fallout of these circumstances. Currently, taking out quick & easy personal loans and mortgages are among the most commonly used solutions. However, although certainly helpful, they are far from being ideal and applicable in every situation.

So, what can one do in the face of the Australian housing crisis and what might come next?

The State of the Market

According to the State of the Nation's Housing 2020 report prepared by the National Housing Finance and Investment Corporation (NHFIC), declining affordability for low-income households is likely to persist — even with the diminished demand for housing. It is a worrying sign for those who wish to enter or make their first steps in the real estate market.

More importantly, it is an indication that the post-lockdown demand shock the housing market experiences might not be enough to lower the prices of properties that are put up for sale. As a result, the deposits Australian citizens managed to gather over the last few years in most cases will probably prove not to be enough to afford to buy a new home.

With that being said, many experts remain optimistic and claim that with higher supply and lower demand, rental affordability should improve. Consequently, with lower renting costs, people earning a lower-than-average income should be under less financial pressure and able to save up more cash for their own homes.

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The Growing Inequality

In the long run, probably the most critical concern related to the fall of homeownership among young people is the growing inequality among Australians.

Those who inherit property from their parents may consider themselves luckier than most. After all, they are the ones that are mostly unaffected by the unstable housing market.

On the opposite end of the spectrum reside younger people who are yet to buy a home. The challenges they need to endure to become property owners are numerous, ranging from high market prices to insufficient residential properties available for purchase.

With Australia's ageing population, this trend might soon put most of the residential home market in the hands of people aged 50 and more. While not necessarily a bad thing, it leads to a wealth transfer, dividing the nation into two groups: the privileged few who get their homes through inheritance, and the rest of people who have to compete in what many call "the crazy housing market".

The Possible Solutions

Right now, it seems that ownership is within reach, but only with outside help — either from family or financial institutions. It is a solution most would deem unsatisfactory, but it is worth considering given the latest trends.

As mentioned in the September report by the Australian Bureau of Statistics, the weighted average of the eight capital cities Residential Property Price Index rose by an astonishing 21.7% in the last year. Moreover, residential dwellings in Sydney, Canberra, and Hobart became even more valuable than homes in other parts of the county, as each of these cities reached over a 25% increase in property prices.

This statistic demonstrates why keeping up with house prices is outside the range of an average Australian citizen. Even if they live in the biggest cities on the continent, people simply cannot keep up with such sharp price growth. With favourable borrowing conditions and stable interest rates, gathering the necessary funding from outside sources became the most attractive option.

 

The Uncertain Future

The current condition of the Australian housing market does not encourage too much optimism. Although paying a mortgage is better now than in the past, there is no certainty that interest rates will remain stable — regardless of the Reserve Bank's policy most likely remaining unchanged until the first half of 2022.

Even more worrying is the rise of the deposit requirement. Today, it remains the most significant obstacle standing between Australian citizens and their dreams of owning a home.

The house prices and wages separated quite some time ago, with the former surpassing the latter by a large margin. For example, as mentioned in this Guardian article, Sydney house prices grew by 105% since 2013, while wages went up by a meagre 18%. This disparity seems to be at the core of housing issues Australian families experience.

Nevertheless, many Australians believe that a lack of affordability should sooner or later cause property prices to head south. Many argue that all the previous episodes of price growth were followed by price falls. Additionally, they point out that once the market cannot sustain itself, it will need to adjust accordingly or collapse under its own weight.

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The Bottom Line

In large measure, the Australian housing market remains a mystery to be solved — both by real estate agents and future homeowners. It can very well stabilise itself or stay unbothered by the lack of affordable housing options it currently provides. Which one of these possible scenarios will unfold remains to be seen.

Nonetheless, it might be beneficial to postpone the plans of buying a new home for a few years. The historically poor house price to income ratio makes it seem much more enticing. Besides, it is a much safer option than taking on a mortgage or debt.

Still, for those who cannot wait, there are many available options they can choose from. Whether a government-issued loan or a conventional mortgage, they can take advantage of low interest rates and worry about paying the money back later.

Written by Przemysław Puternicki

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