Market View: It's not just avocados smashing Sydney's first-home buyer prospects

Do we really need to forgo even the smallest luxury in life to own a home in Sydney? Winning the lottery or a lump sum inheritance from your third cousin twice removed seems as far fetched as the notion of getting a foot on the ladder.

Let’s take investor activity out of the equation (because we know its booming) and focus on finance approved for those who are actually going to reside in the purchased home. This will shed some light on first home buyer activity.

During 2009, almost 59,000 first time buyers seized the opportunity to become home owners in NSW according to ABS finance data. First home buyers were enjoying smashed avocados in their own home as this sector made up a massive 30.8 per cent of owner occupied housing loans approved for the year.

Could a fondness for smashed avocados stop you making that first step on the property ladder? Photo: Chris Hopkins

The peak in activity was certainly bolstered by the Government’s First Home Owner Boost, an initiative to support buyers through the global financial crisis. Subsidised stamp duty, interest rates at 50-year lows and a struggling housing market helped to lessen the burden.

The fact first home buyer numbers in NSW are currently at the lowest level on record illustrates the struggle to home ownership is real. It cannot all be blamed on so-called frivolous spending.

Almost 16,500 first home buyer loans were approved during 2016. While non-first home buyers were at record highs, with just over 186,000 loans approved in NSW.

The disparity between 2009 and 2016 first home buyer activity is extreme. To put current activity levels into perspective, the proportion of NSW first home buyers to non-first home buyers is well below the long-term average of 17.4 per cent – by more than half.

Graphic data: ABS

Only 8.1 per cent of owner-occupied loans approved last year were first home buyers. Under the current low interest rate environment a higher proportion of tenants transitioning to home owners is anticipated. Highlighting the struggle to save a deposit.

Sydney is the most expensive place to purchase and one of the most expensive to rent compared to the other state and territory capitals, making for a tough path to home ownership.

The dream of purchasing a detached home would take the average NSW resident 9 years to save a 10 per cent deposit and a staggering 18 years for the ideal mortgage insurance avoidance 20 per cent*.

The notion of your own block is perhaps a thing of the past for a first timer in Sydney. Putting aside one-fifth of the average after-tax salary would take five years and seven months to save a 10 per cent deposit for a unit and 11 years four months for 20 per cent. Bear in mind this is not factoring in property price growth in this time frame, making for conservative estimates, particularly if prices forge ahead as they currently are.

The adage of buying where you are able to afford and renting where you want to live is something to consider. Or perhaps we are transitting in to an era whereby long-term tenancy is the norm – at least until that windfall.

* Calculated using ABS:6302.0 Average Weekly Earnings trend data, ATO tax calculator and Domain House Price Report December 2016, savings based on 20 per cent of average after-tax salary.

Dr Nicola Powell is a data scientist at Domain Group.