ANZ: The big divide in Australia's home ownership market looks set to grow even further

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For many the dream of owning a home on a quarter-acre block now appears to be just that — a dream.

In the absence of significant changes in housing policy, taxation or economic conditions, recent trends in housing affordability and home ownership are likely to continue, according to a research report released by ANZ today.

In what is bad news for aspiring first home buyers, the bank believes record-low mortgage rates, an increased propensity by younger Australians to save in the post-GFC period, along with a subdued outlook for incomes growth, will likely see the divide between Australia’s housing haves and have not’s increase even further in the years ahead.

“Homeowners and investors are likely to benefit from low mortgage rates for years to come, while first home buyers will continue to find home deposit affordability more difficult than previous generations, unless they compromise on current housing preferences.

A recent ANZ analysis highlighted that the wealth effect from recent house price gains has been subdued, particularly for older households. However, savings rates for younger households have also increased since the GFC. Given younger households generally have less wealth, and are more income-dependent, expected soft household income growth in the coming years will also thwart home deposit affordability. These factors are also likely to constrain consumption growth in younger households may, at least compared to previous generations”.

ANZ also believe that demand from investors, already a highly-contentious issue in Australia, is likely to continue — something that will also benefit existing homeowners rather than those looking to enter the housing market.

“Investor demand for housing, particularly in Sydney and Melbourne is likely to remain strong for years to come in response to volatile global markets, low yields and an uncertain global economic outlook. This is likely to drive further wealth gains for existing home owners. It will also continue to support a strong supply of rental housing, maintaining the relative affordability benefit of renting”.

ANZ forecast that rent is likely to remain relatively affordable, however, the outlook for potential home buyers is not so positive — unless first home buyers are willing to compromise their housing preference.

The chart below shows the dilemma facing first home buyers when it comes to obtaining a 20% home loan deposit. Based on a 15% household income saving rate it would take first home buyers in Sydney more than nine years to save enough for a deposit, avoiding the additional cost of lender’s mortgage insurance. It’s not much better for those in Melbourne who would have to save for more than eight years to secure a 20% deposit.

With incomes growth likely to be outpaced by house price growth in the years ahead the period of time required to save a 20% deposit is only likely to increase. This doesn’t include additional costs such as HELP repayments which, according to Australian treasurer Joe Hockey, many aspiring homeowners will likely have to pay in order to “get a good job that pays good money”.

According to ANZ, if first home buyers are looking for a fighting chance to secure a property, they should look at purchasing a unit.

“Looking ahead, while deposit affordability for detached houses is expected to remain difficult, a sharp increase in the supply of new apartments in the coming years in Sydney, Melbourne and Brisbane will lift the supply of housing at a lower price point”.

It’s not much of a choice is it? Either accept that you can only afford to buy a unit or face renting, albeit at a significantly lower cost. It’s either that or stay home with your parents!

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