Australian millennials rank poorly when it comes to home ownership levels, according to new research released by HSBC earlier today, sitting well below the levels of other developed markets such as the United States, United Kingdom, Canada and France.
In a report titled “Beyond the Bricks”, a survey of 9,000 people aged between 19 to 36 in nine countries, the bank found that while Australian millennials’ desire to own a home was no different from their global counterparts, the barriers to home ownership in Australia were higher.
It said that less than a third (28%) of Australian millennials own a home, only marginally higher than millennials in the United Arab Emirates (26%), and significantly lower than millennials in Mexico, who have one of the highest rates of home ownership (46%).
As a proportion, that also ranked below the United States, UK and Canada at 35%, 34% and 31% respectively.
Perhaps even more eye-opening than the low level of home ownership among Australian millennials was the main factor they cited as the greatest barrier to obtaining a property – saving for a deposit.
“Three quarters (75%) of Australian millennials say the challenge of saving for the deposit for a home loan is their biggest barrier,” said Alice Del Vecchio, head of mortgages at HSBC Australia.
“The deposit for a home loan is the biggest initial cost of owning a home, but buyers also need to factor in the costs of stamp duty, legal fees, mortgage insurance, building inspection fees and in some cases renovation costs.”
And perhaps explaining the reason why so many are struggling to fund a deposit large enough to buy a property, the research found that many Australian millennials aren’t earning a sufficient income.
“Australian millennials said their second-biggest barrier to owning a home was having an insufficient salary to save, with 61% saying they needed a higher salary before they could buy a home,” she said.
So many are struggling to save for a deposit because they’re not earning enough.
It throws cold water over the view shared by more than a few that housing affordability is fine because record-low interest rates have reduced the average proportion of disposable household income required to service a mortgage.
For a start that’s an average, meaning it captures those of all age groups, not those who have just entered the market.
Many older Australians who bought properties before the market took off would have significantly lower outstanding mortgage debt. Newer entrants to the market would undoubtedly have a larger proportion of the disposable income going towards servicing their mortgage costs.
Secondly, that doesn’t break down servicing costs by geographic region, with the cost to service a mortgage in Australia’s southeastern capitals likely to be significantly higher than in other parts of the country.
Yes, income levels also differ, but it’s unlikely to be anywhere near the divergence in the size of mortgages across the country.
Quite simply, it’s not loan serviceability that’s preventing prospective younger Australians from entering the market. It’s saving for the deposit.
And it’s no wonder they’re struggling to find the cash in early 2017.
According to research from CoreLogic earlier this week, the median dwelling price in Australia’s capital cities rose by 16.7% in the year to March in weighted terms, an outcome that was largely reflective of the enormous gains in the prices for Sydney and Melbourne, the two markets where housing affordability concerns are the most acute.
In Sydney, the median price rose by 18.9% to $805,000. In Melbourne, it increased 15.9% to $605,000.
Over 15% annual growth in both markets, adding well over $100,000 to the cost of a median priced dwelling.
In order to just maintain a 10% housing deposit, let alone 20% to avoid lenders mortgage insurance, that means that prospective buyers had to increase their deposit by well over $10,000 over the past year.
Remembering that’s to maintain a 10% deposit, not actually increase it as a proportion of a property’s value.
While some may think that’s not a lot, at a time when youth unemployment is elevated, and when underemployment sits at record highs, it is, particularly at a time when growth in average hourly wages sits at record lows.
It’s incredibly tough, and explains why some deem the dream of home ownership as just that, a dream.
To Del Vecchio, the home ownership dream in Australia is not dead yet, but she says that many younger Australians aren’t helping themselves to achieve that goal.
“Only 17% of Australian millennials intending to buy a home have a precise budget,” she says.
“Establishing a budget to buy a home is a vital step in the process, but your budget should factor in for some changes in property prices, allowing for price increases from the time you begin looking. It is not uncommon to look for more than six months to find the right home, and often prices to enter the market have moved.”
She also says that of the millennials in Australia who have already purchased a home, 45% overspent on their original budget, something she says demonstrates that “many are not prepared for the realities of owning real estate in Australia”.
Some useful advice, with budgeting a key preparation for home ownership.
It goes without saying that sometimes sacrifices have to be made such as skipping that smashed avocado on toast at breakfast or annual overseas holiday.
However, while that’s something those millennials looking for a property can control, it’s clear they’re still at a disadvantage to other parties who are also looking to buy.
The tax arrangements for investors, the ability of foreign investors to purchase Australian property easily and those who have previously owned property — and are likely to have significant equity as a result of prior price gains — clearly have an advantage.
Until the housing playing field is leveled, it’s unlikely to get any easier for prospective first-time buyers, raising the risk that the proportion of younger Australians who own their home will become even lower.