How to Bridge the Housing Affordability Gap - Aug 2024

By Rich Harvey, CEO & Founder, propertybuyer.com.au

There’s no denying that it’s never been harder to buy your first home, with rising prices and high interest rates putting significant pressure on young Australians who want to get on the property ladder.

Despite this, I saw some interesting research recently about how Generation Z views the Great Australian Dream. I figured the majority would be pretty pessimistic, but it seems most remain hopeful - and are even open to unconventional ways of making it happen.

Despite the widening affordability gap, half of young people are extremely hopeful they will be able to get into the market, the McCrindle research showed.

Among those, two-in-five said they would happily buy with family members, like a sibling or their mum and dad, while more than a third would be keen to team up with a mate to share the cost.

How tough things are

Thirty years back, the median house price in Australia was just $111,524. The cost of paying your mortgage accounted for about 20 per cent of your household income, even though interest rates were sitting around the 10 per cent mark.

Right now, the median house price nationally is $865,159 and the median unit price is $652,524. Half of all mortgage holders are spending at least 30 per cent of their income on repayments. It’s worse when you look at income brackets, with Aussies on the lowest salaries forking out about two-third of their money on servicing their home loans.

Right now, the average home loan size in Australia is about $636,000, while back in 1994 it was just $82,000. When you look at how rapidly home prices have grown, it’s no great surprise.

In Sydney alone, the average asking price for a house 10 years ago was $926,965, while these days it’s a staggering $1,904,031. In Melbourne, sellers were seeking an average of $634,921 a decade back, while now the typical asking price is $1,237,188.

Based on home prices, the standard variable rate mortgage and a 20 per cent deposit, you would need a household income of about $293,000 to buy a house in Sydney without being in mortgage stress - that is, paying more than a third of your salary on home loan repayments.

The average income of Sydneysiders is currently about $98,000.

If home prices were to rise at the same rate as they have over the past three decades, the national median house value would be almost $3 million by 2043. That’s an extraordinary number.

But that projection and where things are at currently shouldn’t dissuade would-be first homebuyers from taking steps to get themselves in a position to act.

It’s not impossible

Getting into your first home is a challenge, it’s true. You need a healthy deposit, a good income, and the means to meet some hefty repayments. But it’s not impossible to bridge the affordability gap.

It’s never too early to get financially literate. All young people, from their childhood through to their teens, should be getting their head around how money and markets work. They should be saving and learning the value of investment, including compound growth and high growth strategies.

There’s no real magic bullet. Getting ahead financially requires a lot of hard work, discipline and research. Set a clear and realistic budget and stick to it. Divert as much of your disposable income into savings as you can. If you’ve got a bit of time before you want to buy, consider putting that cash into investments with solid returns, like a managed fund or a high interest savings account.

Are you able to lean on the bank of mum and dad? A growing proportion of young people are turning to their folks in order to bridge the affordability gap, either receiving a cash gift to go towards a deposit or having them go guarantor on a purchase to get to that crucial 20 per cent figure.

It’s worth having a conversation with your parents about what’s possible. Be sure to be clear about what the arrangement looks like - what kind of figure you might need, how and when you’ll pay it back, and what happens if you run into any issues.

If you’re going it alone, are there ways to boost your income? Is it worth investing in your education to fast-track your qualifications and make yourself a more attractive employee in your chosen field? Do you have any skills that could be put to good use in your spare time as a freelancer? Are you handy and can you hire yourself out to do home maintenance, help people move, or run tricky errands for some extra money?

Think outside the square and see if there are any avenues to boost the amount of money you’re banking - and then save every cent you bring in.

Your borrowing capacity, which is what a bank determines based on your income, is the goose that lays the golden egg.

Think about it differently

How realistic are your expectations? Everyone wants to live in the perfect home in their dream suburb, but sometimes it’s better to start off small and work your way up.

Is there a cheaper property type, like an apartment or a town house, that means you can get your foot in the door now? Are there alternative suburbs you’re willing to explore?

Your first home isn’t your last home. You can take a step on the ladder to get yourself in the game and then, over time, either via making improvements that lift its value or waiting for the market to move upwards, or both, you can jump to your next purchase.

Have you considered rent-vesting? This is the practice of buying a property as a pure investment vehicle. You don’t live there, but you rent it out in order to cover some or most of the mortgage, meaning you’re in the market. Then, you choose to rent where you want to live.

Rent-vesting means you’ve secured an appreciating asset that you can either draw the equity from to fund a deposit on your own home, or sell to take a big whack off your future mortgage. You can buy within your means now and put an investment to work for you, to fund the lifestyle you want a little later on.

What about buying with a sibling or a mate? It’s a growing trend among young people, where they split the liability and costs on a home, or an investment, in order to crack in sooner than they would be able to on their own. I think it’s an idea with merit, but be sure that you and your purchasing partner are on the same page. Have clear and frank discussions about a variety of possible scenarios, from one wanting to exit to increased costs or maintenance needs down the track. Then, come up with a rock solid agreement on how you’ll meet any of those challenges.

Look into all of the government grants and schemes on offer, from cash bonuses to deposit assistance and even shared equity. There are some great initiatives available and a few exciting ones coming soon. Be sure to make yourself aware of what’s going so you don’t miss out.

And engage the services of an experienced and qualified buyer’s agent. A buyer’s agent takes on all the heavy lifting of buying a property. They work with you to assess your individual circumstances, your wants and needs, and then go out into the market to find you options. Then, they handle the negotiation and purchase process from start to finish.

A buyer’s agent is a great person to have working hard for you. They can help make your real estate dreams a reality.

  To have one of the friendly Propertybuyer Buyers' Agents to contact you:

   or

call us on 1300 655 615 today.