Low Affordability Challenges Generation X and Y
29th May 2007 | category [ General ]
Gen X and Y Australians, stuck in the rent trap and struggling to save a deposit for a first home purchase, may well be called the Rent Generation, says Real Estate Institute of Australia President Graham Joyce. Home loan affordability plunged in the December quarter 2006 with 35.2% of median weekly family income required to meet average loan repayments, according to the Deposit Power/REIA Home Loan Affordability Report.
Across Australia, home loan affordability declined by 3.9% over the quarter and by 8.0% over the year, worsening in all States and Territories except Tasmania over the December quarter. The largest decline in affordability over the quarter occurred in South Australia, while Western Australia recorded the largest decline over the year.
‘A generation has grown up thinking that a property purchase may be out of reach – home loan affordability statistics seems to support this perception. However this generation may start to realise that soon, renting may also be out of their reach,’ says Denise Bofill, General Manager of Consumer Products, including Deposit Power at Vero.
‘With the erosion of home loan affordability, it is not surprising that home ownership amongst 25 – 34 year olds has fallen, and that first home buyers only represent 17.7% of total homebuyers financed, well below the ten-year average of almost 22%,’ says Graham Joyce.
‘Home ownership is not only essential for Gen X and Y now, but also into the future as they will be required to self-fund their retirement with superannuation and voluntary savings. Retirees who do not own their home need about $300,000 of additional savings yielding 5% pa to meet median rents across Australia.
‘All levels of Government must address this serious issue now - reducing state property taxes and increasing concessions and the First Home Owners Grant for first homebuyers would be a good starting point,’ says Graham Joyce.
BACKGROUND INFORMATION: DECEMBER 2006
Borrowers now need 35.2% of family income to meet average loan repayments, the highest proportion required in almost 17 years. Home loan affordability deteriorated by 3.9% over the quarter and by 8.0% over the year.
New South Wales
New South Wales remains Australia’s least affordable location, with 37.2% of family income required to meet average loan repayments. Affordability declined by 2.2% over the quarter and by 1.9% over the year.
Victoria
Victorians required 34.3% of family income to meet average loan repayments in the December quarter. Home loan affordability deteriorated by 5.3% over the quarter by 10.8% over the year. This is the lowest level of affordability since March 1990.
Queensland
Queenslanders required 36.3% of family income to meet average loan repayments in the December quarter. Home loan affordability deteriorated 3.9% over the quarter and 7.0% over the year.
South Australia
In South Australia, 31.9% of family income is required to meet loan repayments. Home loan affordability deteriorated by 6.5% over the quarter and by 10.8% over the year. This is the worst result for South Australia since September 1990.
Western Australia
The most significant decline in home loan affordability over the year occurred in Western Australia, down 18.5%, reflecting the major increase in house prices in that state. There was a decline over the quarter of 5.0%. 33.8% of family income is now required to meet average loan repayments. Home loan affordability is now at its lowest point since March 1980.
Tasmania
Home loan affordability improved over the quarter 1.8%, but deteriorated over the year by 7.3%. 32.7% of family income is required to meet average loan repayments.
Northern Territory
Home loan affordability deteriorated 4.3% over the quarter and 13.4% over the year, with 21.5% of family income required to meet average loan repayments.
Australian Capital Territory
Home loan affordability is best in the ACT, attributable primarily to median family income being greater than all other localities. 19.8% of family income is required to meet average loan repayments. Home loan affordability deteriorated by 3.8% over the quarter, but improved by 0.3% over the year.
Across Australia, home loan affordability declined by 3.9% over the quarter and by 8.0% over the year, worsening in all States and Territories except Tasmania over the December quarter. The largest decline in affordability over the quarter occurred in South Australia, while Western Australia recorded the largest decline over the year.
‘A generation has grown up thinking that a property purchase may be out of reach – home loan affordability statistics seems to support this perception. However this generation may start to realise that soon, renting may also be out of their reach,’ says Denise Bofill, General Manager of Consumer Products, including Deposit Power at Vero.
‘With the erosion of home loan affordability, it is not surprising that home ownership amongst 25 – 34 year olds has fallen, and that first home buyers only represent 17.7% of total homebuyers financed, well below the ten-year average of almost 22%,’ says Graham Joyce.
‘Home ownership is not only essential for Gen X and Y now, but also into the future as they will be required to self-fund their retirement with superannuation and voluntary savings. Retirees who do not own their home need about $300,000 of additional savings yielding 5% pa to meet median rents across Australia.
‘All levels of Government must address this serious issue now - reducing state property taxes and increasing concessions and the First Home Owners Grant for first homebuyers would be a good starting point,’ says Graham Joyce.
BACKGROUND INFORMATION: DECEMBER 2006
Borrowers now need 35.2% of family income to meet average loan repayments, the highest proportion required in almost 17 years. Home loan affordability deteriorated by 3.9% over the quarter and by 8.0% over the year.
New South Wales
New South Wales remains Australia’s least affordable location, with 37.2% of family income required to meet average loan repayments. Affordability declined by 2.2% over the quarter and by 1.9% over the year.
Victoria
Victorians required 34.3% of family income to meet average loan repayments in the December quarter. Home loan affordability deteriorated by 5.3% over the quarter by 10.8% over the year. This is the lowest level of affordability since March 1990.
Queensland
Queenslanders required 36.3% of family income to meet average loan repayments in the December quarter. Home loan affordability deteriorated 3.9% over the quarter and 7.0% over the year.
South Australia
In South Australia, 31.9% of family income is required to meet loan repayments. Home loan affordability deteriorated by 6.5% over the quarter and by 10.8% over the year. This is the worst result for South Australia since September 1990.
Western Australia
The most significant decline in home loan affordability over the year occurred in Western Australia, down 18.5%, reflecting the major increase in house prices in that state. There was a decline over the quarter of 5.0%. 33.8% of family income is now required to meet average loan repayments. Home loan affordability is now at its lowest point since March 1980.
Tasmania
Home loan affordability improved over the quarter 1.8%, but deteriorated over the year by 7.3%. 32.7% of family income is required to meet average loan repayments.
Northern Territory
Home loan affordability deteriorated 4.3% over the quarter and 13.4% over the year, with 21.5% of family income required to meet average loan repayments.
Australian Capital Territory
Home loan affordability is best in the ACT, attributable primarily to median family income being greater than all other localities. 19.8% of family income is required to meet average loan repayments. Home loan affordability deteriorated by 3.8% over the quarter, but improved by 0.3% over the year.