Erin Delahunty - 21 Sep, 2021

Future of housing affordability as pandemic prices skyrocket

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With Australian house prices skyrocketing during the pandemic, the future of house affordability is in question across the country.

Sydney is no longer the only city where a median-priced home will set you back $1 million, with Melbourne and Canberra both busting that ceiling in June.

And while not quite as expensive, other capitals haven’t been immune to the Covid-driven surge, with the most recent Domain House Price Report revealing price rises in Brisbane, Adelaide and Hobart are at levels not seen in over a decade.

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What does house affordability mean for Australians?

It’s not surprising then the National Housing Finance and Investment Commission found that the bottom 60% of income earners living in Sydney or Hobart can afford less than 20% of available properties.

CoreLogic’s research director, Tim Lawless, summed up the situation. “With dwelling values rising more in a month than incomes are rising in a year, housing is moving out of reach for many members of the community.”

That’s especially the case for young people, who are often on lower incomes and don’t have capital to leverage.

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The Grattan Institute estimates fewer than half of 25 to 34 years olds in Australia own their home, with home ownership among the poorest fifth of that age group falling from 62% in 1981 to 23% today.

The biggest hurdle of course is scrapping together that all-important 20% deposit. And with prices rising up to 30% over the past year in some markets, it’s a hurdle that just keeps getting higher.

Doing the maths, a 20% deposit in Sydney, for the median home of $1.4 million, is $280,000, and in Brisbane, the most affordable capital on the east coast, the equivalent down payment is $136,000.  A year ago, those figures were $228,000 and $116,500.

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Are there ways to overcome a lack of house affordability?

But it’s not all doom and gloom. Fresh research from CommBank shows government incentives aimed at overcoming the deposit hurdle are getting people into a new home up to five years sooner.

Under the First Home Loan Deposit Scheme the Federal Government will guarantee home loans to low and middle income owners who have a 5% deposit set aside, allowing them to avoid costly mortgage lenders’ insurance.

While the Family Home Guarantee will guarantee the loans of single parents who want to build or buy a home with a 2% deposit.

At a state and territory level, the First Home Owner Grant provides a one-off payment, which, depending on where you live, can be combined with other incentives such as the full or partial exemption of stamp duty offered in New South Wales.

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With or without government assistance, the best option for many looking for their first home will be to turn to units, according to Domain chief of research and economics Nicola Powell.

While unit prices are also on the rise across the country, the pace is much slower than for houses, making them comparatively cheaper. 

“Sometimes, affordability is focused on houses, but units have underperformed comparatively, and we have the biggest price gap on record. There’s an opportunity to seize,” she said.

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Saving for a home deposit?

Saving for a deposit may seem all but impossible, but there’s plenty of examples of new home-owners who have knuckled down and squirrelled away the dollars and cents.

Among the top tips for saving are:

  • Set a budget – Evaluate your incomings and outgoings and set realistic savings targets that you can stick to.
  • Automate your savings – You can’t spend what you don’t have! Arrange to have a portion of your salary automatically directed to a savings account.
  • Let your money work for you – If you’ve managed to save a decent sum of money, look for a long-term deposit account that will have a higher interest rate. Investing in shares is another option.
  • Shop around – It takes a bit of effort, but there are savings to be made on everything from groceries and clothes to insurance and credit card fees.

Words by Erin Delahunty

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