Find your feet as a first home buyer

26th Apr 2016By: Tim Lawless

Since the halving of the First Home Buyers’ grant ‘boost’ in October 2009 and its subsequent complete removal in January 2010, first home buyers have been a diminishing proportion of the Australian housing market. .

At the time of this post GFC stimulus, where first home buyers received a $14,000 handout for buying an established home or $21,000 for buy a new home, first home buyers peaked at just over 31% of all owner occupier housing finance commitments. Participation from first time buyers in the housing market virtually fell off a cliff once the boost was removed, with first home buyer mortgage commitments reducing to just 16% of the market within a year of the boost being removed.

The latest figures from the Australian Bureau of Statistics (ABS) show that first home buyers have continued to play a smaller role in the housing market with the February data showing first time home buyers represented only 14.7% of owner occupier housing finance commitments; the lowest level since June 2004.

The ABS figures are published across the states and territories and show some wide regional variations. In New South Wales, first home buyers are the lowest proportion of the market at just 12% based on housing finance commitments over the past 12 months. This is the lowest proportion on record in New South Wales, but comes as no surprise considering Sydney home values have increased by 76% since the beginning of 2009.

At the other end of the spectrum is Western Australia where first home buyers represent 21.9% of the owner occupier market. In fact, Western Australia is the only state where the proportion of first home buyers is higher than the state decade average (20.7%). Home values across Perth have reduced by 4.6% since peaking in December 2014. It seems that first home buyers are taking advantage of the improved buying conditions and better affordability in this market. Not to mention record high levels of new housing supply over recent years.

The most significant barrier to first home buyers is likely to be affordability. Home prices have appreciated faster than incomes, particularly in Sydney and Melbourne, which makes it harder for first home buyers to raise a deposit. Add to that the fact that lenders are generally seeking a 20% deposit on new mortgages and the difficulty for first home buyers becomes more apparent.

Another factor acting as a barrier to first home buyer participation in the housing market is that rents remain relatively sluggish. Capital city rental rates were down 0.2% over the twelve months to March 2016, the first negative movement in the CoreLogic rental series since the measure began in 1996. With declining rents and affordability pressures, first home buyers are likely to remain on the sidelines for the foreseeable future.

What the ABS figures don’t show is investment activity from first home buyers. Anecdotal evidence suggests more first home buyers are choosing to invest in the housing market as their first purchase while continuing to rent in areas where they prefer to live but can’t afford to buy. In my mind, this is a legitimate strategy whereby younger cohorts of the market can get their foot on the housing market ladder without sacrificing their desire to live close to where they work and play.