Cashed-up parents and governments hold the key to helping a generation of Australians buy a home.
For generations, the great Australian dream of owning your own home was a given. But now Australians under 30 are the generation which has had the home ownership door slammed in their face.
House prices have risen so quickly (more than 60 percent from 2015-2022) they have vastly outpaced wages growth. Even if young people can scrape together a deposit — many can’t — repayments are prohibitive.
As a result around two-thirds of young people are giving up on home ownership completely while older generations, who bought in their 20s and benefited from the real estate boom of the 2000s, can accumulate even more.
The challenge is how best to help the young get their foot on the ‘property ladder’. Targeted housing policies which address this growing generational divide are needed urgently.
It is to be expected that the housing wealth of older Australians will exceed younger Australians, due to higher home-ownership rates later in life. However, this intergenerational gap is widening at an alarming rate.
In 2018, nearly nine in 10 aspiring first homebuyers were locked out of home ownership because they were unable to meet the deposit requirement or service a loan.
Using Australian Bureau of Statistics data, we can estimate that in 1997-98, the primary home equity of Australians in their 50s was 161 percent greater than that of Australians in their 30s. Twenty years later, this gap had increased to 234 percent.
Expanding wealth gaps are not limited to age differences alone. As depicted in the table below, the gap favouring income-rich Australians over the income-poor doubled to 191 percent in 20 years. Similarly, the gap between urban and regional areas doubled from 46 percent to 93 percent, favouring city dwellers. Nevertheless, the disparity in housing wealth based on age remains notably larger than those based on income and geography.
Those with access to the ‘Bank of Mum and Dad’ have a substantial advantage.
Using data on the ownership status of young non-owner Australians from the Household, Income and Labour Dynamics in Australia Survey, we can estimate those who received a cash transfer or inheritance from their parents – in excess of AUD$5,000 – were more than twice as likely to enter into home ownership in the subsequent year.
Parents also provide indirect support. Young people living in rent-free dwellings provided by family or friends were three times as likely to buy their own home.
Those co-residing with home owning parents experienced similar ownership outcomes as those in the private rental market.
Disturbingly, those co-residing with non-owner parents were 70 percent less likely to enter ownership than either group.
Those from disadvantaged backgrounds are then more likely to continue the cycle of being excluded from home ownership, following in their parents’ footsteps.
Successive Australian governments have introduced first home purchase assistance schemes, most notably the First Home Owners Grant that offers a subsidy to eligible first homebuyers to assist with the deposit.
Such grants have often been criticised for not being targeted enough. Perhaps less well-known are shared equity or shared ownership schemes, which are usually more targeted.
The newest such scheme offered by the Australian government is the Help to Buy scheme, introduced to enable low-to-moderate income households to become homeowners while also helping to make mortgage repayments more sustainable.
The homebuyer can purchase a home with as little as 2 percent deposit without incurring lenders mortgage insurance. The government contributes 30-40 percent of the purchase price, substantially reducing the mortgage loan for the home buyer.
The scheme has strict property price caps and income limits. Modelling shows that 31 percent of first homebuyers will meet the property price and income criteria. Among those eligible, 41 percent will be assisted into first homeownership if there were no limits placed on the numbers who can access the scheme.
The ‘catch’ is that the homebuyer will only gain equity on the portion of the property they own.
Such schemes are also complicated. Homebuyers bear the responsibility of maintenance costs, council rates and other ongoing costs, and may face restrictions on their freedom to renovate. However, homebuyers are not required to pay rent on the share owned by the government and can also increase their share over time via ‘staircasing’, where they can buy more of the property later.
While parental assistance for home purchases is becoming more common, it entrenches inequality. Young people from affluent backgrounds are more likely to benefit and become homeowners. Those from disadvantaged family backgrounds are less likely to receive parental transfers or become homeowners.
Schemes like Help to Buy may alleviate inequality. Because of its targeted nature, it has appeal for disadvantaged households, facilitating home ownership for those who would otherwise be excluded from the market.
There is one big problem with any scheme that helps first time buyers.
All forms of direct assistance will increase demand and push up prices in entry-level housing markets in the face of supply constraints.
The reality is assistance for home buyers must be balanced with a steady supply of affordable housing.
Right now government policy which gives generous tax concessions to property owners will continue to push house prices out of reach of younger generations. This can only be addressed by implementing structural tax reform, such as winding back capital gains tax concessions on property assets.
Rachel Ong ViforJ is a John Curtin Distinguished Professor and Australian Research Council (ARC) Future Fellow at the School of Accounting, Economics and Finance, Curtin University.
Christopher Phelps is a Postdoctoral Research Fellow at the School of Accounting, Economics and Finance, Curtin University.
Melek Cigdem-Bayram is an Economic Analyst and Advisor at Jesuit Social Services and Associate Senior Research Fellow at the School of Global, Urban and Social Studies, RMIT University.
This research was undertaken with ARC Future Fellowship grant FT200100422 and AHURI grant 81274.