Unaffordable housing is leading to a permanent shift in property ownership, say senior economists from BIS Oxford Economics, and indeed several mortgage professionals have reported seeing a significant drop-off in FHB clients.
Speaking at the BIS Oxford Economics Building Forecasting Conference in Sydney recently, managing director Robert Mellor emphasised that the housing affordability issue is “leading to a permanent reduction” in home ownership, particularly in the under-35 age group.
“I suspect this will be leading to a permanent reduction in the under-45 age group and the 35 to 45 age group in 10 years’ time,” he added.
“It'll flow through in time because people will not get into home ownership even in their 40s. They're struggling to get into it in their early 30s now. This is a permanent change.
“It’s a sleeper that is going to start to hit governments and lead people to be concerned as they realise that there are no easy options, there's no quick solution to this.”
Similarly, managing director Kim Hawtrey emphasised that unaffordable housing is putting home ownership “beyond reach of a whole generation”.
Mr Hawtrey explained: “Melbourne's median house price just cracked the $750,000 barrier for the first time in the fourth quarter of 2016. Sydney was rated the seventh most expensive city in the world, after Angola number one, New York number two, San Francisco number three, Zurich number four, London number five, Hong Kong number six. And Brisbane, although cheaper than those two cities, has also seen a significant increase in prices and decline in affordability.
“Queensland has seen significant house price growth, so have Sydney and Melbourne. And in the eastern states, that is creating a problem for first time buyers. We've calculated the amount of deposit that a first-time buyer requires. $145,000 for an established dwelling in NSW, $105,000 in Victoria, and $63,000 in Queensland. These are pretty significant deposit hurdles and they probably take about four to six years for a young couple or a young person to save on a typical income of the 20-35 age group.”
Speaking to Mortgage Business, several mortgage brokers have discussed seeing a significant drop in FHB clients.
Finance Made Easy director Tony Bice commented: “I've noticed a dramatic drop off in first time buyers as I'm sure every broker will tell you. They're just never in anymore. And those that are, are under a family pledge.
“I think the days of being able to buy a property in the major cities like Sydney, Melbourne and Brisbane – with the amount of money you’ve got to come up with for a deposit and the sheer price of the property you're buying – I think they're getting further and further away.”
David Hayward of PartnerOne added that along with a drop-off in FHBs, he has also seen an attitudinal shift among younger homebuyers.
“I've seen it not only in numbers but I've also seen it in the prevailing attitude, there's disillusionment around, ‘well how do we do this? We might as well just give up because it's out of reach. I can't get into the market so I won't bother, I might as well spend my money travelling, etc.’”
Further, Nicole Cannon of Pink Finance told Mortgage Business that currently 26 per cent of her applications are first home buyers, 50 per cent of which are receiving assistance from their parents.
Investors ‘pushing’ FHBs out of the market
Mr Hawtrey highlighted that despite attempts by APRA to rein in investor lending, it has been “running hot again” in recent months.
“We've seen that the market is driven very much by upgraders, downsizers and investors rather than first time buyers,” he explained.
Mr Mellor highlighted that the December quarter saw investor loans rise by 31 per cent, a number which he said is “of concern”.
“I think now we're getting to a level where you clearly are seeing investors pushing out first time buyers from the market,” he said.
Mr Hawtrey concluded: “A whole generation is being locked out of home ownership and in that 20 to 34 age group, in Queensland in particular, home ownership has been falling.
“We'll find out when the census comes out this year, but we estimate that by 2016 home ownership will have fallen to 30 per cent in that young people age group.”
Government establishes affordable housing taskforce
The Turnbull government announced last week that it has established an Affordable Housing Implementation Taskforce, which will develop an affordable housing bond aggregator model for consideration by the Commonwealth and the states and territories.
“An affordable housing bond aggregator would allow a financial intermediary to attract greater private sector investment into affordable housing,” the government explained in a statement.
“This would give community housing providers access to cheaper and longer-term debt, freeing up capital for the construction of new affordable housing.”
An expert panel has been appointed to guide the work of the taskforce, which will include Mr Stephen Knight as chair, Ms Peta Winzar and Mr John Fraser and engage with international and domestic experts, including those from the development sector.
The working group will report back by the middle of the year.