Housing affordability: Who’s worse off – Gen Y vs Baby Boomers

It’s an old argument isn’t it – who had a worse time for housing affordability?

Gen Y say the Baby Boomers had it easy as first home buyers, Baby Boomers don’t see it that way.

I remember the  days when home loan rates were around 10% and the time in the late 1980s and early 90’s when loan rates rose to 17%.

While new figures point to improved housing affordability across the board, how does affordability for first home buyers compare now to then?

And is housing affordability comparable between the two generations?

Finder.com.au had a look at the battle of the generations and here’s what they found:   housing-affordability

The latest price growth trends from the Domain March Quarter (2016) report show that median prices have dipped in every capital city, except Melbourne and Hobart which are up 1.2% and 4.3% respectively. Darwin saw the greatest slump in price growth (-4.9%)  followed by Sydney which saw a -1.5% drop.

With the news that the median house price in Sydney fell below $1 million for the first time in a year, the media is buzzing.

Combine the cooling housing market with a low-interest rate environment, and first home buyers should quit complaining, right?

However, it seems that first home buyers are still getting the rough end of the stick.

Although low-interest rates make the cost of borrowing cheaper and more accessible, they also drive up the cost of housing due to greater demand. So, how does current affordability stack up against the Baby Boomer scene?

The numbers: Baby boomers versus Gen Y

Despite popular belief, baby boomers weren’t without their affordability blues.

A 1980’s Baby Boomer rate of 17.0% is unthinkable in today’s market where mortgage holders currently repay 5.35% interest.

According to figures analysed by finder.com.au, in the late 1980s, average home loan rates rose to 17%.

Coupled with this, house prices fell, which forced many borrowers to sell up.

The average loan size in NSW for owner-occupiers in the 1980s was around $80,000 while the average rate was 17%.  

Over a 30 year term, monthly repayments were around $1,140.54 and weekly repayments were $285.14.

At this time, the average person was earning around $620 per week.

Thus, the weekly repayment of $285.14 represented a ghastly 45% of average weekly earnings.

Fast forward to 2016 where the average home loan rate is 5.35% and the average loan size in NSW is $416,000.

Assuming the same loan term as above, the weekly repayments would be around $536 per week.

If we compare this to the average weekly earnings of NSW of $1,712, this represents 31% of average weekly earnings.

In the late 1970s-80s, the average NSW home buyer took three years to save their deposit.

In 2015-16, the average NSW home buyer took nine years to save their deposit.

Interest rate Loan size Income/mortgage Time to save for deposit
3 years
9 years

Both generations have suffered

So who loses out on the affordability debate? While the numbers suggest that Gen Y may have it tougher, it’s difficult draw comparisons due to the large number of variables to consider.

However, it’s clear that owner-occupier in the 1980s and today have both struggled to comfortably service a mortgage.piggy bank save mortgage house property gold loan deposit

In fact, both generations encountered mortgage stress by using more than 30% of income to repay a mortgage.

Then there’s the socio-economic and cultural factors to consider.

Arguably, young people in the 1980s were more likely to have a combined income compared to young people today.

A higher rate of saving was also encouraged in the post-war era and Baby Boomers didn’t have to contend with a $50,000 HECS/HELP tertiary education debt.

However, there is no real substance in saying that Gen Y has it tougher than their older counterparts. You cannot accurately compare two distinctly different times.

The passage of time has not done a lot to improve housing affordability.

Both generations have suffered in their own right.


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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au

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