Caught between renting & a hard place

AUSTRALIANS unable to enter the home ownership market are now stuck in a rent trap and are struggling to save for a deposit, according to a new report.

According to the Deposit Power/Real Estate Institute of Australia Home Loan Affordability Report, Generation X and Y Australians may well be called the Rent Generation.

Deposit Power’s general manager of consumer products Denise Bofill said a generation has grown up thinking that a property purchase may be out of reach and 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.” she added.

In the December quarter 2006, Australians needed 35.2% of their median weekly family income to meet average loan repayments – the highest proportion needed in 17 years.

Across Australia, home loan affordability declined by 3.9% over the quarter and by 8.0% over the 2006 year.

REIA president Graham Joyce said 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%.

There were no suprises in the quarter, New South Wales remains Australia’s least affordable location with 37.2% of family income required to meet average loan repayments in the December quarter. Affordability declined by 2.2% over the quarter and by 1.9% over the year.

Queensland came in second place with 36.3% of family income required to meet average loan repayments. Home loan affordability deteriorated 3.9% over the quarter and 7.0% over the year.

Victoria came in just under the national average, with 34.3% of family income needed to meet average loan repayments. Home loan affordability deteriorated by 5.3% over the quarter by 10.8% over the year.

Victoria’s home affordability is now at its lowest level in 17-years since March 1990.

South Australia was akin to Victoria with 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.

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% and 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.

In the 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.

The Australian Capital Territory remained the most affordable location despite home loan affordability deteriorating by 3.8% over the quarter, but improved by 0.3% over the year

In the ACT, 19.8% of family income is required to meet average loan repayments.

Tasmania was the only exception in the quarter with home loan affordability improving by 1.8%, but deteriorated over the year by 7.3%.

In Tasmania, 32.7% of family income is required to meet average loan repayments.

Joyce said 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,” he concluded.

Australian Property Journal