The dream of owning a home has become increasingly elusive for first home buyers (FHBs), and experts point to Australian government intervention during the COVID-19 pandemic as a significant factor.
A recent study on FHBs highlights the potential consequences of economic measures implemented to stimulate recovery during the pandemic.
The research has been published in the journal “Buildings” – it’s significant because it’s one of the few qualitative studies examining the impact of financial stimulus on FHB entry amidst the unprecedented circumstances of the pandemic.
The study
To gather insights, researchers conducted a survey involving 61 FHBs in NSW. The respondents shared their experiences of navigating the housing market during a period marked by significant COVID-19 economic policies, including interest rate cuts, superannuation withdrawals, mortgage payment pauses, and income supplementary programs.
The findings are alarming, with approximately 71 percent of respondents indicating that their purchasing price range had escalated throughout the pandemic. Moreover, 83 percent of FHBs expressed that the process had become more arduous and complicated, presenting substantial barriers to home ownership.
The study highlights a potential link between government intervention and the inflationary impact on property prices. While these economic responses aimed to stimulate recovery and alleviate financial strain, the unintended consequence is a more arduous road for aspiring homeowners.
As FHBs continue to grapple with the obstacles in home ownership, it’s crucial for stakeholders, including the government and industry players, to collaborate and implement targeted measures that support this vital segment of the housing market.
According to Associate Professor Chyi Lin Lee, a co-author of the study, the economic policies that were aimed at promoting home ownership – such as the first home loan deposit schemes – might have harmed people by heating the market.
“The pandemic saw extraordinary economic responses from the government to stabilize the economy and businesses, but they arguably had unintended consequences for FHBs that put them in a more disadvantageous position than before the pandemic,” Associate Professor Chyi Lin Lee said.
Locked out of the market
Homeownership in Australia has been on the decline for decades. Professor Lee, the discipline director of construction management and property at UNSW Sydney, said one of the main barriers to entry for FHBs is a widening deposit gap, which increased significantly with rising house prices during the pandemic.
“Capital city property prices increased by nearly 20 percent, raising the time and money needed to make a down payment. As income to house price ratio continued to expand during the pandemic, FHBs reported taking longer to save up a deposit,” Professor Lee said.
“Meanwhile, investors, particularly those already in the market who benefited from soaring house prices, can refinance for another purchase and are seen to outbid FHBs easily.”
The survey participants highlighted market inequality as the primary hurdle, with 48 percent identifying investors and the advantages enjoyed by existing homeowners due to favourable tax policies regarding holding or selling property.
“As income to house price ratio continued to expand during the pandemic, FHBs reported taking longer to save up a deposit,” Professor Lee said
“Meanwhile, investors, particularly those already in the market who benefited from soaring house prices, can refinance for another purchase and are seen to outbid FHBs easily.”
During the pandemic’s peak in mid-2021, there was a notable increase in investor activity in the market, accompanied by a decline in the number of FHBs.
“Not only do policies of discount capital gains tax and negative gearing encourage investor activity and further pressure house prices, but monetary policy, such as record low-interest rates during the pandemic, may be considered further stimulus to encourage investing,” Professor Lee said.
Still just a dream
FHBs acknowledged an escalating dependence on financial assistance from their parents, assuming higher levels of economic vulnerability and opting to move to regional areas to enter the housing market.
Only 27 percent of survey participants contemplated paying a 20 percent deposit, whereas 21 percent received a monetary gift to aid their deposit, and approximately 12 percent obtained a guarantee. Additionally, a significant 77 percent stated that acquiring any property held greater significance than finding their dream home.
“Even before the pandemic, many FHBs were finding it difficult to get into the market, with many predicting the situation will likely get worse,” Professor Lee said.
“This is driving a fear of missing out, resulting in many taking on higher levels of debt, rushing into purchases without completing thorough due diligence, relocating for affordability reasons or reducing their expectations for their first property.”
“Policymakers should consider expanding support for FHBs beyond demand-side subsidies and invest more resources into supply-side interventions, primarily introducing more housing into the market.”
Sydney has reached a point where gaining entry without substantial aid has become exceedingly difficult. It already holds the title of the most unaffordable city in Australia for housing and ranks second least affordable globally.
According to the latest Demographia International Housing Affordability survey while Sydney is second worst in the world, Melbourne ranks fifth-worst, due to high demand brought on by low interest rates and dangerous borrowing levels.
All Australian mainland state capitals are among the 20 most expensive for housing globally, with Adelaide 14th, Brisbane 17th and Perth 20th.
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