Traditional barriers to homeownership
- Increasing house prices. Increasing rental prices
- Stagnant wages inhibiting potential to save money
- Limited education around the home purchasing process.
It is well known that Australia is currently facing a housing crisis. Young people and first home buyers spend a substantial proportion of their income on rent, resulting in a decline of standard of living to below a level that is reasonable or modest in Australia. Rent is now at such a high cost that it becomes impossible for this cohort to save a deposit, allowing them to purchase a home in the future. The barriers keeping this cohort out of the property market are considerable.
According to Core Logic, housing affordability and home ownership problems are on the rise because house prices have risen almost 10 times faster than wages in the last year. While wages increased 81.7% in the past 20 years, Australian home values have grown 193.1%. Living costs are rising, which are putting additional pressures on the working population.
The Financial Stability Review for October 2020 states that housing affordability is a large problem for younger generations, particularly people in the lowest 40% of income bracket. The spike in property prices over the last 5 years and in turn, the rise in deposit amounts required to purchase a home, makes the prospect of home ownership out of reach for many individuals.
COVID19 has also harmed the aforementioned cohort. Many people are now facing the predicament of having to pay a large proportion of their wages on rents in order to live in desirable locations within close proximity to job opportunities or alternatively, having to move to rural locations to rent or buy for less, with fewer job prospects and a lower potential for wage growth.
“Two decades ago, a quarter of all households were renting but that number has since grown to one in three. Australians are slowly becoming one of the highest renting populations in the western world. Our younger population believe in living week-to-week and find saving an impossible goal.” – ABS statistics 2022
While long-term renting has become accepted by society, the experience as a tenant has always been a poor one. While Gen-Z and Millennials are accustomed to fast paced and modern digital experience from online shopping to digital banking, the digital age has not caught up with the outdated process of renting. Landlords are always the priority for real estate agencies as agents are only incentivized by their management fees and property commissions. The tenant experience has always been overlooked.
When young Australians are ready to undertake the purchase of their first home, their lack of credit history (thin credit files) and lack of financial literacy continues to be another barrier to home ownership entry. Since the renting experience does not translate to wealth management, renters tend to remain in the rental rinse, with little to no pathways to home ownership.
In summary, the main problem with property ownership in Australia is supply and demand driving house prices upwards as household income lags behind.
