Generational gap in homeownership widens

Homeownership among younger first-time buyers has declined significantly, with almost a third fewer Australians achieving this milestone compared to those born in previous decades.

New research from the Australian Housing and Urban Research Institute (AHURI) found that the homeownership rate of first-home buyers born in the late 1980s is significantly less than was the case for first homebuyers born in previous decades.

Over the last 30 years, ownership rates for households at age 30 to 34 have declined substantially — from 65% of people born in the mid to late 1950s being homeowners by age 30 to 34, to only 45% of people born in the mid to late 1980s.

University of Sydney School of Economics Professor Stephen Whelan, who was one of the authors of the research, said that even after 20 years, the rate of ownership is still only 75% of the rate in earlier decades.

“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,” Mr Whelan said.

Interestingly, as these younger groups of potential homebuyers grow older, they are less likely to catch up and buy a home.

In fact, 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.

Mr Whelan said if younger age groups are not able to catch up, it could spell significant declines in living standards and increases in poverty among people who have retired but 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,” he 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.”

A study early this year by Domain showed that conditions remain tough for first-home buyers even with the decline in the time it takes to save for a deposit compared to last year.

Dependence on the “Bank of Mum and Dad”

Mr Whelan said younger Australians are increasingly relying on their parents to help them get into the property market.

“Parents now represent an important source of finance for younger households either through cash transfer, by being able to save money while still living at home, or by parents acting as a loan guarantor.

The so-called Bank of Mum and Dad remains significantly important for many younger Australians and is considered among the biggest mortgage providers in Australia.

A $10,000 funding support from parents, according to the research, is associated with nearly double the probability of a younger household buying their first home.

Meanwhile, living with their parents allow younger Australians to save $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 home ownership of approximately 30% to 40%,” Mr Whelan said.

“Similar to direct money transfers, this in-kind assistance provides an important, albeit informal, way into homeowners.”

However, there are two concerns on the intergenerational transfers from parents to children — first is the increase in the level of inequality in the society, as seen in the level of wealth, which is clearly associated with housing tenure.

Over 2002 to 2018, the largest growth in wealth was observed among outright-home owners while renters, the least wealthy group, experienced very limited increases in wealth.

Another concern is that family support is unlikely to be available to all younger Australians.

This makes it necessary for the government to introduce more policies directed at potential first-home buyers who might otherwise never be able to buy a home.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Important Information and Comparison Rate Warning

-

Photo by AndreyPopov on Canva.