I bought a home in my 20s. That doesn’t mean it’s become easier, writes Millie Muroi
Late last year, I realized the great Australian dream: I bought my own house (a small, gray flat) in one of the most expensive housing markets in the world.
Even though it’s been a few months, a big part of me still doesn’t like talking about it. I don’t like to lie when friends and acquaintances ask me how much rent I pay, but it almost feels like a brag to say I bought a place when I know how bad housing buying has become.
I also run the risk of feeding the perception that it’s not that hard for young people.
This week, my colleague Caitlin Fitzsimmons did some research and mentioned that data from the Australian Institute of Health and Welfare shows exactly that: young Australians – at least millennials – are entering the housing market later in life, but are ultimately “catching up” with their predecessors.
He writes that no generation in the foreseeable future will match the homeownership rates of the oldest Baby Boomer generation.
But each group of young people after the Boomers appears to be catching up to, or even surpassing, the homeownership rates of their predecessors a little earlier in life.
In other words, Australians born between 1977 and 1981 had achieved almost the same level of homeownership as people born in the previous five years, when both groups reached their 40s.
Meanwhile, those born between 1982 and 1986 managed to achieve similar homeownership rates. their prime seniors (those born between 1977 and 1981) slightly earlier: mid-to-late 30s.
It is important to note that none of the (perhaps generously defined) “younger” generations (those born from 1977) have actually caught up with the older generations, at least at the national level. “Catching up” occurs between five-year groups born between 1977 and 1991.
I also don’t believe the “catch-up” among younger generations is evidence that buying a home isn’t any harder than it was for older generations. There is a gap between homeownership rates and housing affordability; both contribute to the housing crisis.
It is indisputable that the average new loan size for an owner-occupied residence has ballooned into eclipse. $700,000just five years ago it was $512,000. It is well documented that the size of this debt (and overall house prices) is also increasing when compared to median income.
The price of a typical house in Australia is approx. four times the average income In the early 2000s. It is now eight times the average income, and in cities like Sydney it is 10 times.
So how is it possible for younger generations to chase after each other when it comes to home ownership rates?
As AMP chief economist Shane Oliver points out, there are a lot of things that make getting into the housing market a little easier; not for all young Australians, but at least for some.
Government programs such as grants for first home buyers and lower minimum deposit requirements (while arguably increasing demand and prices) have somewhat offset the increased deposits required for a home.
Now when taking the median income household almost 11 years Exemptions such as the 5 per cent deposit scheme for first home buyers to save 20 per cent on deposits for an average-value home mean some can get in a little earlier – as long as they’re happy to keep their eyes on their debt for a while.
“The banking system has also become more competitive,” says Oliver. “There are now options including longer loan terms and interest-only loans.”
Being locked into a 30-year loan is something older generations don’t consider or need. This might mean it’s easier to get a loan and get that first foot in your front door, but it could also mean struggling with debt for longer: not exactly a good arrangement, especially given that income growth has barely kept pace with inflation over the last few years.
But the biggest factor is mom and dad’s bank.
Boomers, many of whom took advantage of rising house prices, downsized, shared some of their savings, or passed the entire inheritance to their children, while some of the younger generations have and will continue to reap a windfall (trillions of dollars over the next decade or two, according to the Productivity Commission).
This is a game changer, of course, but we can’t afford it.
As a Zoomer with unusually old (sorry if you’re reading, mom and dad) parents who fall into the Boomer category, I have benefited in many ways.
Not only did they and the grandparents’ bank agree to lend me the shortfall when I found an apartment just out of my price range, but I also received support in other ways.
In the twenty years I’ve lived with my family in Perth, I’ve never had to pay rent or put down money to keep the lights on. I had time to study and pursue extracurricular activities relatively uninterrupted (except for a year or two when my brother picked up the trumpet), which meant I could get the grades and gain the experience that helped me land a great job. And throughout my career, I have benefited from being in the right place at the right time.
Of course, I worked hard, faced some painful challenges, and made sacrifices. But without all the right circumstances, I could have found myself much further away from homeownership.
Many of my friends are in this exact situation. Some chose to move abroad where living costs, including housing, were cheaper. Others flounder, knowing they may never own a home or that it may take decades to come to terms with it. Homeownership shouldn’t be determined by choosing the right parents, but unfortunately that’s what we expect babies to do these days.
A report last year from the Australian Council of Social Service (ACOSS) noted that wealth inequality among young households has worsened, with the top 10 per cent seeing their wealth rise by 126 per cent and the bottom 60 per cent seeing their wealth rise by just 39 per cent in the two decades to 2022.
We’re yet to see census data on homeownership when it comes to Gen Z and Generation Alpha, but there’s little to celebrate if younger generations catching up in the homeownership game is largely due to longer, larger loans or windfall inheritances.
The reality is that housing costs (both house prices and rents) are very high compared to the average Australian income. While I would benefit from my apartment increasing in value (now that I’ve locked myself into thirty years of debt and consumed nearly half of my income), that’s not what I want.
We may not think much about it beyond our own interests, but housing unaffordability comes with a lot of costs we probably don’t even realize we’re paying beyond our mortgage or rent.
When people spend large amounts of money on housing, it puts them under financial stress, puts their health and wellbeing at risk and reduces productivity: one of the biggest hurdles to our economy. It also worsens inequality, adds pressure and creates instability at a time when social cohesion is already shaky. The worst is the human cost. We must look out for each other and ensure that one of the most basic human needs is met.
Homeownership should be fair game for all generations; not just for those born too early or late to exit the womb to win the second-hand lottery.
The Business Briefing newsletter delivers big stories, exclusive news and expert insights. Sign up to receive it every weekday morning.
Millie Muroi is the economics writer for The Sydney Morning Herald and The Age. He was previously an economics correspondent for the Canberra Press Gallery and a banking writer in Sydney.Connect with: X or email.
