Millennials locked out of home ownership?

Like other traditional social markers of growing up such as being in a relationship, getting a job, learning to drive, getting drunk for the first time, and getting married, home ownership is a revered milestone in Australia, a marker of adulthood and a key to economic security.

While much of the early history of humanity remains a mystery, the need for a permanent home has almost certainly been with us since humans set down their roots and moved from hunter-gatherer societies to agrarian culture. The earliest evidence for this is around 13,000 years ago. I’m sure that if the cave-child managed to live long enough to survive being eaten by sabretooth tigers and trampled by mammoths they would eventually leave the protection of their family and find their own cave.

As an aside the transition to an agrarian culture and permanent structures to live in created the first known economic surpluses in human history, giving people more time in the day. This allowed people to specialise in certain tasks and gave rise to an explosion in art, pottery, philosophy, and science. The instinct to own your own home seems embedded deep in our genome.

However, for the Millennials born between 1980 and 1994 owning a home is becoming more difficult for anyone without family wealth. House prices have been growing faster than incomes for at least 40 years courtesy of continuously declining interest rates. This allowed households to borrow more and bid up prices. The rising equity in their own homes was then used to upsize to bigger homes or investment properties increasingly concentrating the wealth in the hands of a few. Home ownership rates have been falling since the 1980s in a nation that used to pride itself on being an egalitarian society.

In the late 80s and early 90s house prices hovered around 2.5x household disposable incomes, today it has risen to around 5.5x. While the government is aware of this problem, it seems that housing affordability is a problem they don’t really want to solve, with many in public service owning investment properties themselves. In addition, over 50% of state and local government tax revenue comes from property taxes.

At present, the largest hurdle to home ownership for millennials is the inability to save enough for the deposit and stamp duty. While a range of government incentives exist to assist first home buyers in Sydney and Melbourne, the most common way to get a foot in the door is with an inheritance or using equity or a guarantee from Mum and Dad – usually, an investment property is the most cost-effective way to begin the journey towards home ownership. In the current credit environment, there are investment properties that are cash flow neutral or positive in any capital city. Right now the east coast capitals are in the early stages of a macro bull run and 2022 is going to be one the best times to enter the property market.

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