There were groans heard across the land when former prime minister Scott Morrison, talking up his government’s last budget in March, offered his solution to the housing affordability crisis.
When asked about assistance for struggling tenants, Mr Morrison suggested the easiest way out was to simply buy a home.
It was a glib soundbite that nonetheless touched on a truth of Australia’s brutal rental crunch – the barriers to first-home ownership are keeping mid- to high-income earners in rental properties for longer, causing a worsening squeeze at the bottom of the market.
Low-income earners and socially disadvantaged people – who cannot dream of owning a home – have found themselves in a position of not even being able to afford skyrocketing rents.
That’s if they can find a rental property at all, with national vacancy rates at a shockingly low 1%.
“There’s declining social housing and declining home ownership, and that means the private rental market is where most people are going,” said Dr Michael Fotheringham, managing director of the Australian Housing and Urban Research Institute.
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Scott Morrison's advice went down like a lead balloon... but did he have a point? Picture: Getty
So, Mr Morrison wasn’t totally off the mark – easing the pressure at the bottom of the rental market means tenants with the earning capacity to get into homeownership need to make a faster transition.
But the problem at the moment is that’s just not happening. Here’s why.
What’s hindering young homebuyers?
The most significant barrier standing in the way of first-home ownership is the time it takes to save that essential 20% deposit.
Research by PropTrack found that average savings times have doubled as home prices have boomed.
“Over the span of two decades, what has really changed is the deposit burden and how much time it takes to save,” PropTrack economist Angus Moore said.
“Compared to 1990, when saving for a 20% deposit took about three years, that’s now up to six or seven years – and that has slowed down people’s ability to get into the market.”
Dr Fotheringham agreed, saying the week-to-week commentary on rising interest rates and softening house prices overshadowed the real underlying issue.
Huge barriers to homeownership are seeing people rent longer, putting pressure on those at the lower end of the market. Picture: Getty
Put simply, wages growth has “not remotely” kept up with rising home prices, he said.
“The number of years that first-home buyers need to save has ballooned and that’s the problem.”
Another burden facing first-time buyers is the much-hated upfront stamp duty impost, which can add between 3.4% and 5.7% to the cost of a $1 million property, depending on the jurisdiction.
Even though most states – apart from South Australia and the Northern Territory – have stamp duty exemptions or concessions available to first-home buyers, the purchase price caps have not kept pace with rising home prices, according to PropTrack data.
In New South Wales and Victoria, the respective $800,000 and $750,000 thresholds haven’t been modified in five years. In Queensland, the $550,000 threshold has remained unchanged since 2012, while Western Australia’s $530,000 threshold has been in place since 2014.
That means the percentage of properties where those discount or exemption schemes can be utilised keeps shrinking. For example, in NSW just 12% of houses were below the $800,000 threshold at the time of PropTrack’s research in May.
A number of factors making buying a first home harder, including stamp duty. Picture: Getty
The NSW Government has attempted to address the issue by introducing a new scheme that will allow first-home buyers to choose between paying a one-off stamp duty hit or a much smaller annual land tax bill. It’s expected to come into play at the beginning of 2023.
“I think it will certainly help many first-home buyers,” Mr Moore said. “It’s a generous policy. With the type of dwellings first-home buyers are looking at, the land tax will be much less than stamp duty, unless they stay in those homes for many years.”
High stress and big sacrifices
Gold Coast resident Yasmine Purcell, 28, knows the stresses of both the rental and the homebuyer markets, having just settled on her first property after a decade of being a tenant.
Over the past few years, the constant insecurity of renting has seen Ms Purcell and her partner, Brodie Grant, 30, forced to move four times.
“It was a nightmare,” she said. “You plan to be in a place for a year or more and then the owners either decide to sell or put the rent up to unaffordable levels.
“We were in a four-bedroom place in Miami that was $700 a week and we were sharing with a roommate. When Covid hit, the rent went up to $900. There was no point in staying, so we had to leave the property.
“Every time you move, the costs add up – you have to organise a moving truck, do your bond clean, and store your things. Luckily, we could stay at my partner’s parents’ house in between places.”
Rapidly rising rental prices have added to pressures facing hopeful first-home buyers. Picture: Getty
The couple were living in another rental, in the northern Gold Coast suburb of Jacobs Well, when they received a fateful phone call.
“We thought it was about renewing the lease,” Ms Purcell said. “But the phone call was to tell us the owner was going to sell the property and that left us in a sticky situation, were we going to rent again or quickly find a property to buy?”
Ms Purcell, who works in the real estate industry, decided five years ago that she needed to start saving for a deposit.
She and Brodie had embarked on an austerity drive to put away every cent they could.
“There were a lot of sacrifices,” she said.
“I’m pretty bad at getting coffee on the go and we had to consider every little thing – even that. We gave ourselves less spending money during the week and there were no takeaway meals. We really only spent on the weekend.
“We didn’t go on holidays and when we were shopping, we would look at meals we could use as leftovers for lunch.”
With a looming eviction deadline, the pressure to quicky find their first home was huge, even though they had reached their savings goal.
They found a place in Jacobs Well, five minutes’ drive from where they were already living, and went for it, finally securing the three-bedroom house on 900sqm with an offer of $710,000.
“It was quite stressful,” Ms Purcell said. “I think it was more so because we weren’t pre-approved, we didn’t really know what our borrowing capacity was, we just put an offer in and hoped.
“The stamp duty came as a shock – we didn’t realise how much it was until our broker told us. It was another expense we were not really across, so in the last couple of months we had to save even harder.
“Then there’s interest rates. It’s very stressful to see them going up. And the cost of petrol. And food. We’ve just got engaged so there’s a wedding to save for now as well.”
There is little relief in sight for struggling tenants. Picture: Getty
But ultimately it has been all worth it, she said.
“Five years ago, I thought I would never own a property but if you really knuckle down and look at your expenses, it’s do-able. It’s an amazing feeling to have our own home.”
Buyers catch Covid surprise
Avi Khan, principal of Ray White Marsden AKG, which is in a fast-growing area of Queensland between Brisbane and the Gold Coast, has seen first-hand the increasing pressure on first-home buyers.
Many tenants are being forced to remain in the rental market for longer, Mr Khan said, which can be a double-edged sword.
“We’re seeing more renewals of leases than ever before in the past six months, even when landlords are increasing prices,” he said.
Competition among tenants, who are generally aged between 30 and 40 and have been struggling to get into homeownership, has been so fierce that the agency regularly receives applications from people who haven’t even viewed a property.
And a place that may have once received one or two applications can now get as many as 16, with some people offering to pay six months’ worth of rent in advance if that’s what it takes.
“Most people were staying for 12 months but now we’re seeing those tenancies going for 18 months or 24 months – there has definitely been a doubling in the length of tenancies,” Mr Khan said.
He said many of those longer-term renters would’ve once been hopeful first-home buyers, who had been caught unawares by the Covid price boom.
“A lot of house hunters were caught by surprise after the predictions of doom and gloom at the beginning of Covid proved to be wrong,” he said.
“Everyone was saying the market was going to fall by 30% but the opposite happened. A lot of people were shocked by that, and instead of being able to take advantage of a dip in prices, they found themselves having to go back and save for another two or three years.”
Queensland agent Avi Khan said many longer-term renters are those who would've once bought a home. Picture: Supplied
In the popular Sydney inner-west first-home buyer belt, Stone Real Estate Newtown agent Frederico Fraga-Matos has noticed buyers are encountering another barrier – their own unrealistic expectations.
“First-home buyers don’t seem to realise that their first home isn’t going to be their last purchase,” Mr Fraga-Matos said.
“Time and time again, I see them at inspections for a year, or more than a year, and they pick on everything that’s not right about a home. They want to have a home that’s perfect, just the right size and with all the best features.
“The reality is that’s only available to people with an unlimited budget. I’d be hard-pressed to find a buyer in this market who hasn’t bought a home without hating at least one thing about it.”
That’s something that rings true for Ms Purcell on the Gold Coast.
“It’s funny because that describes me,” she said. “I always thought the first home I’d buy would be a mansion, something really nice. I was so set on it.
“But I came around and realised, this is the money I can spend if I want to live comfortably. You do have to make compromises with your first home, I think.”