First-home buyer rates lag previous generations – study

"Bank of Mum and Dad" remains an important source of finance for younger households

First-home buyer rates lag previous generations – study


By Mina Martin

The homeownership rate of first-home buyers born in the late 1980s is nearly a third lower compared to FHBs born in previous decades, new AHURI research has revealed.

The research, “Transitions into home ownership: a quantitative assessment”, undertaken by researchers from University of Sydney and RMIT University, found a substantial decline in the homeownership rates of FHBs aged 30 to 34 – from 65% of people born in the mid- to late-1950s, to just 45% of people born in the mid- to late-1980s.

“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,” said Stephen Whelan (pictured above), professor at the School of Economics University of Sydney and research co-author.

But more importantly, the research found that these younger groups of people are less likely to “catch up” and buy a home.

“After 10 years the ownership rate ‘gap’ when comparing the 1950s cohort to the 1980s cohort (at age 40 to 44) has closed by less than half, and after 20 years (at age 50 to 54), the ownership rate is only around 75% of the 1950s group,” Whelan said.

The data is worrying in that if these younger age groups don’t get to catch up to buying a home, this can lead to large declines in living standards in Australia as well as increases in poverty among retired people who are still renting.

“One of the key constraints younger people are facing in wanting to buy a home today is the need to save enough to be able to pay a deposit or down payment,” Whelan said. “If we measure housing affordability by the time required to save for a deposit for a ‘typical’ dwelling for an ‘average’ household, we see that in markets such as Sydney and Melbourne it now takes over six years.”

To overcome the deposit hurdle, the "Bank of Mum and Dad", one of the top 10 mortgage providers in Australia, has become an important source of finance for younger households, either through cash, by being able to save money while still living at home, or by parents acting as a loan guarantor. A transfer of $10,000 is associated with nearly double the probability of a younger household buying their first home, research analysis showed.

“While transfers of cash from parents to children is part of that family support there is also an increasing tendency for younger Australians to reside in their parents’ home,” Whelan said. “This allows younger Australians to accumulate savings in the order of $300–$400 per week that can be used to buy a home.

“Every additional year that a young person lives at home, as opposed to renting elsewhere, leads to an increase in the odds of transitioning into first-time homeownership of approximately 30% to 40%.”

The report can be downloaded from the AHURI website.

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