If you’re thinking of buying your first house, you may be forgiven for being a little resentful of older generations who have paid off their mortgage and enjoyed high capital growth in their properties. It’s not uncommon for Millennials to resent the fact that for Baby Boomers, home ownership was so much easier.
But has buying your first home only become a struggle in recent years? Or has it always been a stretch, no matter which generation you represent?
Buying Your First House: Unrealistic Expectations?
The common notion is that younger generations have an unrealistic expectation about the size and location of their first home. And these days they want all the trappings upfront, instead of building up possessions and hanging the curtains gradually as their parents and grandparents would have expected.
Social researcher Mark McCrindle, of McCrindle Research, describes the gen Y expectations as an “unintended consequence” of the long period of prosperity.
“Many gen Ys expect to start their working life in the manner in which they’ve seen their parents finish their working life — in a nice home in a nice part of town with cars and a bit of a lifestyle option and maybe an overseas trip every now and then,” he says.
“That’s not how the baby boomer generation started their housing but the children have never seen that. They’ve only seen the outcomes of the decades of earnings and accumulation. It can create an artificial expectation of what’s possible.”
Another social researcher, David Chalke, who works on the long-term AustraliaSCAN research of social attitudes, says it is difficult to compare intergenerational housing affordability because the generations lead such different lives.
“The parents of gen Ys got out, got married and got a house by the time they were in their early 20s,” he says. “In contrast the current generation probably don’t couple up until they are in their 30s, probably don’t finish university until their mid-20s and, rather than being committed to stability, they are committed to exploration, discovery and exhilaration.”
Chalke says the younger generations were less concerned with acquiring material things than their parents, and were accustomed and adapted to a life of “impermanence”, born of broken households, less stable career structures and a global mindset.
Buying Your First House: Is It Really Unaffordable?
So how much money does a household need to be earning to get into the market, and are perceptions of a lack of affordability true?
A report on the housing market from the Australian Bankers Association, cited revised ABS data showing first-home buyer loan commitments had stabilised at about $100,000 a year since 2011. This is well below the peaks during the heavy subsidies of the Rudd era and on a par with the levels of the mid-1990s. The ABA saw this as evidence that first-home buyers still had access to the market.
All eras have had their borrowing challenges. The austerity model of first housing so solid in the mindset of older generations was driven in part by the logic of household income — typically one modest wage and home ownership starting before there had been too many years to save.
There was also the time, particularly in the 1980s, when the federal government still capped the level of mortgage interest rates and banks complained they were not making enough margin on that category of lending. At that time many major banks required a 30 per cent deposit and a strong history of saving, and you had to have a meeting with your earnest, dark-suited local bank manager who eyed you over his glasses like you were trying to steal his wallet.
Buying Your First House: The Era of Huge Homes
Master Builders Queensland deputy executive director Paul Bidwell says part of the affordability issue is the propensity of Australians to build very large homes by world standards.
He said the last international comparison, produced six years ago, showed the average dwelling in Australia was 215sq m, compared with 201 in the US, 196 in New Zealand and just 76 in Britain.
“One thing we have been seeing for some time is that people are more interested in the big home and less interested in the size of the land,” he said.
Buying Your First House: Incomes & House Prices
The Foundation for Young Australians 2014 report Reviewing Australia’s Promise states that in 1985 average houses cost 3.2 times average income. By 2013-14, this had risen to 6.5.
Raising money for an initial home deposit has also created a financial barrier for new entrants. It took 139 per cent of a household’s income in September 2016 for a 20 per cent deposit on a home. In September 2001 it took 86 per cent of a household’s income.
Bill Randolph, who has been researching Australian housing trends for several decades, says the change is real and pronounced.
“Traditionally, it was the perceived notion that house prices more or less tracked household incomes because those were the people who bought houses,” he said. “I think there is no doubt that from about 2000 onwards house prices detached from earnings and incomes and started to head for the sky. That’s largely about the rise of the investor market severely distorting house and property prices and of course the availability of cheap money.”
Randolph, the director of the City Futures Research Centre at the University of NSW, says the polarisation of incomes in Australia over the past 40 years was also affecting the affordability equation.
“If you were on an average income in 1970s you could probably buy an average-priced home. These days if you’ve got an average income you are not going to be able to buy an average-priced property.”
This question is also perplexing Grattan Institute chief executive John Daley, who co-authored the 2014 report The Wealth of Generations. He sees housing affordability as a generational issue as well as an emerging social, economic and political dilemma for Australia.
Daley points out that home ownership is not only falling for the under 35s. The figures were showing ownership rates had also fallen for the 35-44 age group and similar signs were emerging in the 45 to 64s.
“Obviously if you are lucky enough to get a very well-paid job then your chances of getting a nice house are much higher. But the reality is there are only so many well-paid jobs to go around. The current younger generations are much better educated on average than their parents, but they are struggling to enjoy the advantages. I don’t think there is any evidence that young people are less willing to work than in the past.