This article is from the Australian Property Journal archive
SMASHED avocados have been traded in for two-minute noodles as 25 to 34-year-olds trying to save for their first home are forced to make tough lifestyle choices, with a new report suggesting it is “no longer feasible” for people in the age bracket to independently save up enough for a first home deposit.
AHURI’s Pathways to home ownership in an age of uncertainty report, undertaken for AHURI by researchers from the University of Sydney and Curtin University shows 74% of young adult renters in Sydney and Perth reported they had less than $5,000 in savings – not nearly enough for a home loan deposit – and 40% homeowner hopefuls expect to call on the bank of mum and dad to achieve their home ownership dream.
A 20% deposit on the median dwelling price in Sydney is $220,000 and $106,000 in Perth.
“Spending on ‘smashed avocado’ brunches and other frivolous items is definitely not a lifestyle option for young people saving for their first home, no matter what their income level,” the report said.
Prolific developer Tim Gurner infamously declared in 2017 that young Australians would struggle to buy a home when they were “spending $40 a day on smashed avocados and coffees and not working”.
Even households on moderate incomes are unable to keep pace with market increases through their usual saving and budgeting strategies. They’re also having to deal with a cost-of-living crisis fuelled by rampant inflation and higher interest rates.
In addition to the survey, researchers gave financial diaries to 20 households to explore deeper the complexities of spending and saving habits.
“The diaries confirmed that young adults are actively using strategies to support saving, such as minimising discretionary spending and paying ahead on utility bills. They’re not spending much on eating out, going out or going on holidays, with the most common saving strategies being cooking at home – including relying on meals of two-minute noodles – and spending less on clothing and household items,” said lead author of the research, Laurence Troy of the University of Sydney.
“Instead, the young adults are focussed on paying reoccurring items such as food, petrol and debts, with the biggest challenges being the large irregular, and often unexpected, expenditures such as car repairs and professional insurances.”
The report comes out the same week Domain research shows falling prices, higher interest rates accrued on savings and wage growth all combine to reduce the time to save for an entry-priced home deposit. However, those looking in Sydney would still need to be saving for six years and eight months for a 20% deposit on an entry-priced house. In Perth, it’s three years and seven months.
In the AHURI research, about 40% of respondents in Sydney and 47% in Perth have already become home owners.
Family support is key
Some 40% of the over 850 young adults surveyed expect some form of financial support from their family towards buying their new home.
“The financial diaries also showed that for the young people living in Sydney, family support was essential for those who had bought a home,” said Troy.
“For the people living in Perth, it was still possible to buy a home without direct family help, although a number did benefit from both financial and non-financial support from family.’
A major problem identified is that young people’s incomes are erratic or are just not high enough to save for a deposit on a property, and more than 95% of the young adult renters surveyed “do not come close” to having enough savings for a deposit.
“One of the most important saving strategies to emerge was living with parents or in properties owned by parents,” Troy said.
“However, if only those with families who are able to provide support can do so, then those who don’t have supportive family are potentially locked-out of home ownership altogether. And by extension, locked-out of the important wealth building dimension that housing provides, particularly into retirement.”
Troy said that past rules and assumptions – such as the old gold standard of the size of a mortgage should not be more than four times your annual income – are now “irrelevant”.
“Instead, we observe all-options-on-the table attempts to scramble together enough cash to buy into the market.
“Generally, the strategy is to save as much as possible, reduce spending and call in favours from family.”
Notably, diary participants did not see government support as essential in their journey towards buying a home, which the report said suggests that current government supports at the point of purchase, such as stamp duty exemptions and grants, have by and large only succeeded in bringing forward home purchases for those already in a position to buy, and have been relatively unsuccessful in allowing more households to become home buyers.
