The rising cost of renting appears to be blocking first home buyers from entering the housing market the traditional way, according to two recent reports.
The first, from lenders mortgage insurance (LMI) provider Helia, found 80% of first home buyers are now unable to save up a 20% house deposit.
The second report, research from the Parliamentary Library, commissioned by the Greens, and using data from the Australian Bureau of Statistics (ABS), found typical renters pay the equivalent of a house deposit in rent every five years.
“The cost of rent makes it impossible to save for a deposit,” Australian Greens spokesperson on housing and homelessness Max Chandler-Mather said.
Advertised rents have increased 15% over year to September to an average of $550 a week, according to PropTrack data.
Meanwhile, rental vacancy hit a record low of 1.1% across the nation as demand for housing continued to outstrip supply.
The total rent paid by a typical household living alone over the five years to 2023 was estimated to be $106,550.
Over the 10 years to 2023, each rental property was estimated to have demanded $209,908 in rent.
In 2019, the average first home buyer put down a $90,000 deposit, as per the ABS.
Considering the median Australian house price ($747,424 in October, according to CoreLogic) a typical 20% deposit would likely be around $149,500 today.
The research commissioned by the Greens notes its estimates rely on very broad assumptions, use Australian averages, and that findings don’t reflect any particular individual circumstances.
According to 3,001 home buyers surveyed on behalf of Helia, half of those in the market for their first home were considering buying in an effort to get out of the rental market.
“Banks won’t give you a mortgage without a deposit even though as this data shows, renters are already paying almost a housing deposit worth of rent every five years,” Mr Chandler-Mather said.
Still, Helia found first home buyers are continually driven to buy property, with six in ten believing now is a good time to get into the market, largely due to rising rents and fears that house prices could continue rising.
The LMI provider noted it would take a median-earning couple saving a fifth of their income 13 years to save a 20% deposit on a house in Sydney and eight years for that on an apartment in the city.
Alternate pathways to homeownership
While the above findings might be deflating for hopeful would-be homeowners, there are a number of ways to enter the property market without a 20% deposit.
The first is by paying LMI.
“LMI is an alternative strategy to achieve home ownership, enabling buyers to enter the property market, potentially buy a larger home, and start building equity sooner,” Helia chief commercial officer of LMI Greg McAweeney said.
LMI is generally between 2% and 3% of a home loan’s value and can help a buyer snap up a property with as little as a 5% deposit.
Helia’s research revealed three in five first home buyers will rely on LMI to get into the market despite over 70% stating it sounds expensive and that they may consider using it as a last resort.
Another way to enter the market is through the ‘Bank of Mum and Dad’ – two in five first home buyers received help from family when buying a home this year.
Finally, there are multiple government assistance schemes that could guide a first home buyer into the property market.
Perhaps the most popular is the First Home Guarantee and the Regional First Home Buyer Guarantee.
The two guarantees are part of the Federal Government’s Home Guarantee Scheme, on which nearly a third of first home buyers leaned last financial year.
The upcoming Help to Buy scheme might also allow hopeful homeowners into the market sooner than they otherwise might have entered.
The shared equity scheme will see the government contributing of up to 30% of the purchase price of an existing home and 40% of a new home, thereby owning a stake in a property purchased by eligible home buyers.
Home buyers turning to the scheme won’t pay interest on the funds put forward by the government, but will have to hand over a proportionate share of any capital gains or losses on the sale of their property.
However as NAB CEO Ross McEwan told 3AW radio in Melbourne on Friday, there are questions on if these schemes actually help in the long term.
"I’m always reluctant to manipulate a market because you either pull forward demand or push it out when you put all these incentives and changes in," Mr McEwan said.
"I think we get back to the problem we have - we just do not have enough homes to be built. So let’s get to that point of how do we actually build some more homes, get the planning approval standardised across all the states."
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Image by Ronnie George on Unsplash.
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