Why ‘everyone’s anti-Boomer’ - at least when trying to buy a home

Dwelling prices have almost doubled over the same timeframe as wages have risen by a third, putting pressure on workers trying to save for a home deposit.

Australia’s median dwelling price passed $995,000 across the combined capital cities in the June quarter, Domain’s latest House Price Report shows. It has nearly doubled since March 2012 when it was almost $498,000.

Over the same timeframe, wages have lifted by 35 per cent to the March quarter, official figures from the ABS wage price index show.

The widening gap has left the average household struggling to afford the average house unless they have help from family or can move into high-paying jobs.

Separate research has found home loan applicants earn much more than only a few years ago – the average buyer in 2019 had a household income of $160,000, but this has risen to $220,000, meaning workers on more modest incomes that could have purchased a home would now struggle to do so in a higher interest rate environment.

House prices boomed when interest rates were at low levels, both before and after the pandemic began, but their resilience at high levels in the face of higher interest rates has surprised economists.

“That’s been the big mystery,” said AMP chief economist Shane Oliver. “I would have thought [high house prices] would have acted as a constraint, along with the high interest rates, but somehow the market just seems to be able to squeeze out more gains.”

He said the fundamental issue was the shortage of supply, where the nation needed 250,000 new dwellings a year to accommodate population growth but was only building about 170,000. As interest rates went down, people were able to borrow more money.

He suggested one source of support was the savings buffers that workers built up during lockdowns when they were unable to spend normally.

Home buyers have also been relying on the bank of mum and dad, he said. Parents who have gained wealth through the housing market are able to either go guarantor or make loans or cash gifts to their home-buying offspring.

Other buyers are working more hours or multiple jobs in a strong labour market, he said.

“There are question marks as to how much longer it can continue although these issues have been raised over many years… and yet the property market keeps going along.”

In terms of wages, he said the Reserve Bank’s inflation target of 2 to 3 per cent meant it was difficult for wages to grow much faster than 4 per cent a year because anything above that could add to inflationary pressures.

Mortgage broker Aaron Christie-David is fielding demand from buyers with either help from parents or a government first home buyer scheme.

“There are people that are already in the market so effectively they’ve got the jump on you – the Boomers, they bought all those properties years ago, and now everyone’s anti-Boomer because they’ve had time on their side,” the Atelier Wealth managing director said.

“As an asset class property has well and truly proven itself and Australians have a love affair with property.

“The power of compounding, that’s effectively the story. Property compounds, incomes don’t.”

ANZ economist Madeline Dunk said continual growth in housing prices made it tough for people looking to get into the housing market.

She noted the mismatch between supply and demand of homes. Home construction has been lacklustre, while investor demand has been resilient and many owner occupiers want to have a home office since the pandemic began.

“There has been some structural shifts about how households have decided to spread out. They value their own homes in terms of making it a comfortable place to work from home,” she said.

“It’s part of the Australian psyche that we really want to own our own home.”

She said some buyers were having to get support from family, while others were cutting back on spending.

“It’s challenging for a lot of people to purchase a home. We know the amount of time it takes to save for a deposit has gone up quite a bit.”

But she said wages growth had been more sluggish in Australia than elsewhere, and a low unemployment rate was taking time to flow through to wages.

Investors have also been active on lower-priced properties, chasing the rental yields on offer, he said.

But he said the bank of mum and dad was the ultimate leg up for younger Australians who couldn’t save enough to buy a house.

“The only way to get in is one, parents or family, two is, they’ve got access to some type of first home buyer scheme,” he said.