OPINION

There’s more grim news for want-to-be first home buyers in Australia.

Despite sharply higher mortgage interest repayments, lower borrowing capacity and inflation eating into the weekly pay packet, house prices across the nation have
risen strongly, pushing the first home further out of reach.

House prices dropped a little last year, but since January this year have risen by 7.2 per cent nationally.

A 20 per cent deposit on the median priced Australian house has climbed to A$148,000 ($159,000).

For someone on the median national income it would take 10 years to save the cash for the deposit. And this doesn’t take account of incidental costs such as stamp duty, which runs into the tens of thousands. Stamp duty is levied on home purchases in Australia and calculated as a percentage of the purchase price. For instance, buyers of a $700,000 property in Victoria or South Australia would have to pay close to $40,000 in stamp duty.

Having purchased the median priced house, the median income earner would then have to spend 44.7 per cent of their income to service the loan, according to the ANZ CoreLogic Housing Affordability Report.

The fact is that someone on the median income wouldn’t be able to afford to buy a median dwelling, priced as they are at over A$700,000 ($751,000).

ANZ and CoreLogic estimate the value of an affordable home for the median income earner is A$479,000 ($514,000).

What’s more, rents are up sharply, which makes it all the more difficult for people to save for a deposit when more of the income is being eaten up by present needs.

Housing briefly became a little more affordable (or more accurately, a little less unaffordable) at the start of 2022 when the prospect of higher interest rates prompted prices to fall.

The reverse will happen once it looks like rates have peaked and will soon start to come down, likely some time next year.

The moment prospective buyers think rates won’t go any higher, they’ll be doing their sums to work out the maximum they can afford, confident that they won’t have to pay any more and could soon be paying less when rates begin to fall.

These buyers will rush into the housing market to get in before others with the same idea and home prices will jump even higher.

Whenever house prices soften a little – such as last year or at the onset of the Covid pandemic or during the 2007 global financial crisis – it turns out to be just a pause in the seemingly inevitable upwards march of home prices.

The fundamental reason for this is lack of new housing supply.

Australia’s population is growing, but nowhere near enough new homes are being built to accommodate the extra people.

In the 12 months to March 2023, net migration to Australia hit a record 454,000 people. There was some catch up from below average Covid years in that number, but migration will still remain high – Treasury expects more than a quarter of a million permanent migrants in each of the next two years. On top of this, Australia hosts about three-quarter of a million foreign students at any one time.

New housing is nowhere near keeping up – official data shows about 170,000 dwellings were started in 2022-23.

While there are short-term factors making the construction of new housing difficult – such as record building costs and high interest rates constraining funding – the lack of new housing is a long-term problem.

Cutting back on migration is not an option, as it is one of the key drivers of economic growth, particularly with stalling productivity growth.

The problem is worse in Sydney than anywhere else. In Melbourne, where more but not enough new homes are being built, prices haven’t risen so much.

In Sydney there’s less vacant land for new developments and a lot of local council areas aren’t allowing the construction of new homes and are pushing back at increased urban density, which is the only opportunity to increase housing when land is short.

The Federal government is trying to incentivise new building with modest tax concessions, and with even more modest success.

The only solution is for governments to step in and force councils to allow more new housing development and to make the tax treatment of new home investment much more attractive than existing homes.

In the meantime, housing will remain as unaffordable as ever.

We’ll keep looking at income to house price ratios, the number of years to save for a deposit, and the proportion of wages needed to meet the mortgage repayments as gauges of housing affordability.

But these numbers are in their own way a bit of a fiction.

Because increasingly a person’s income and the size of their deposit don’t determine whether they’ll be able to buy a house.

The determining factor for many people is how wealthy – and generous – their parents are.

More and more people who buy their first homes are doing so with help from the “Bank of Mum and Dad”.

We should have a whole new set of data to indicate whether a person will be able to buy their own home or not, things like: the parents’ superannuation fund index; investment property to children ratio; and mum and dad’s proclivity to give financial assistance to adult children.

Until we solve the housing supply problem, home ownership will increasingly be determined by the lottery of who one’s parents are rather than one’s own hard work and thrift.

Christopher Niesche is an Australia-based financial journalist with 25 years’ experience on Australia’s major newspapers, most recently as deputy editor of the Australian Financial Review.