More and more first home buyers are having their dreams of home ownership shattered by rising house prices and continuing population pressures on many of our major cities urban fringes.
In the not too distant past, young Gen X-er’s and Gen Y’s managed to get a footing on the property ladder by purchasing in new, outer suburb estate developments. However research has revealed that this last affordable bastion of home ownership is rapidly moving out of reach as land values begin to soar.
Supply constraints and ever increasing demand from the thousands of new residents flocking to Melbourne’s outer urban corridor every week are pushing prices of greenfield subdivisions to new heights. Many of the 600,000 new Melbournians who migrated to the city over the past nine years chose to settle in these new home suburbs, yet planning policies and government red tape has restricted the amount of residentially zoned land available for development.
Then of course there’s the added hurdles of interest rate uncertainty, the escalating cost of living and renting and the fact that the average first home loan is now sitting at a record high $279,300. When you consider that the median house price in Melbourne rose by 15.2 per cent to sit at $547,000 for the year to February (according to the Real Estate Institute of Victoria), it’s not surprising that the the percentage of Gen Y’s and X’ers who own their own homes is falling.
In January this year the number of loans issued to first home buyers was just 1676, the lowest level in seven years and well below the 4,500 first home buyer loans taken up in May 2009.
In addition, figures from the Australian Bureau of Statistics reveal that the number of households renting increased from 19 per cent to 22 per cent in the 10 years to 2006 (time of the last census), while further data indicates that 32 per cent of tenants are made up of those in the 35 to 44 age bracket, which represents an increase of 5 per cent over the same period.
Faced with growing affordability issues that show no signs of abating any time soon, it’s clear that younger, urban dwelling generations will be confined to the rental market for many years to come. Many are reluctant to move too far from our major cities where employment prospects, as well as public transport, cafes, shopping and entertainment facilities are all in close proximity. However the potential to purchase in these areas is becoming far less likely, with renting being the only option.
Little is being done to address the continuing affordability issues facing first home buyers at either the federal or state levels of politics. The Victorian liberal camp has promised stamp duty cuts due in the middle of this year of 20 per cent initially, which will eventually rise to 50 per cent for first homies spending $400,000 on property. But is this really enough?
All of this points to one inevitable outcome that brings good tidings for property investors, but less than appealing news for the current generation of tenants out there.
Essentially, we can expect to see already low vacancy rates tighten even further across all of Australia’s major capital cities which will in turn push rents up. As yields become more attractive, investors will be enticed into the marketplace and once again, prices will be placed under upward pressure.
It certainly is a rental roundabout and the trend of higher numbers of private tenants in the market does not look like diminishing any time soon.
Good news for investors, but not such great tidings for tenants!