The width of the chasm between younger renters and first home ownership – and its impact on the housing market overall – has been clearly exposed in latest analysis by Bernie Lewis Home Loans. Despite their best efforts to save for a home of their own, many young people are caught in a four-way trap of escalating rental costs, a continuing rise in housing prices, a first home owner’s grant that has not kept pace with market trends, and State Government duties.
“First home purchases, as a percentage of all purchases, have dropped dramatically, and it is still trending downwards,” said Mark Lewis, Managing Director of Bernie Lewis Home Loans. “We are heading towards a scenario where we are potentially excluding a whole generation of first home buyers from owning a home”. “Many of us may sit back and say: ‘Well, I already own a home, so it doesn’t affect me’.
“But that is completely wrong. The different segments of the market are intrinsically entwined. “People sell their homes generally to upgrade, so first home buyers usually sell their homes to buy at the next level. This creates the buyers and sellers across all market segments. “But by excluding thousands of first home buyers, the flow on effects will be felt at all other levels. With baby boomers at the higher levels of the housing market retiring over the coming years, and looking to downsize or move into retirement villages, who will be there to buy their homes?”
Mr Lewis said the median house price in Adelaide had risen from $134,000 in 2000 to $290,000 in 2007. “During the height of the property boom, there was a flood of investors into the market, which meant there were plenty of properties available for rent. As a consequence, rents did not increase much and so property yields went down dramatically.
“However, as there were significant capital gains to be made during the period, investors weren’t too concerned with the rental incomes as they knew they would be benefiting from the strong property market and the capital appreciation of their properties.
“Fast forward to 2006. The share market is booming and the Federal Treasurer announced the generous superannuation changes. Since the core of property investors mainly comprises baby boomers and generation Xers, the changes made many of them reconsider their investment strategy. “They have sold their low yielding investment properties, cashed in on the large capital gains, and put the money into superannuation or into the booming share market. “And now in 2007 there is a major shortage in rental properties, which of course has started driving rents up at an alarming rate – in some cases up to 20 per cent per annum.
“Prior to purchasing, first home buyers are typically renters. With increasing rents they are finding it more and more difficult to pay their rent as well as save a deposit for a home. “As the median house price is now $290,000, they must save an increasingly larger deposit. The trouble is they are caught in what I term the ‘perfect storm’ in that – even if they can find a place to rent – they are paying a much higher rental, and they can’t afford to buy a home.
“There are incentives with the Federal Government’s first home owners grant of $7,000 and State Government stamp duty rebates. “The first home owners grant was introduced in 2000 with the GST, but it has not kept pace in real terms since then. In 2000, the $7,000 grant would pretty much cover the fees and stamp duties for a first home buyer purchasing their home. Now it doesn’t even go close to covering the stamp duties alone.”
In 2004, the South Australian Government increased incentives for first home buyers by raising the stamp duty threshold. It also increased the upper limit for when the rebates cut out from $130,000 to $250,000. “Bear in mind, though, that at $250,000, the stamp duty rebate is only $15.00,” Mr Lewis said. “Not so long ago you’d be lucky to buy a kilogram of bananas for that!” “In 2004, there were 166 out of 369 Adelaide suburbs with a median house price of less than $250,000. There were 69 with a median price of less than $200,000.
“Fast forward to the present, and there are now only 29 suburbs in which the median house price is less than $200,000, and only 88 suburbs where it is less than $250,000. “In 2004, the median house price was $247,000, so there was some basis for the upper limit of $250,000 at which the rebate cut out. “But the State Government failed to put an indexing clause in the system to ensure that the rebates kept pace with increases in median house prices.
“In 2005, the State Government announced a removal of mortgage stamp duty in stages. However, it is not being removed completely until 2009 despite many other States having done so already. In fact, SA will be the second last state behind NSW to completely remove Mortgage Stamp Duty.
“A comparison of purchase stamp duties with other States and Territories on a first home buyer purchase of a $250,000 home shows the total fees payable in this State would be $10,276. In New South Wales and Queensland, there would be no fees and in Western Australia the fee would be $296.00
“The State Government is recently on the record as saying that it is doing enough for first home buyers. Clearly that is not the case. “Instead, the State Government has become increasingly wedded to the windfall profits from property stamp duties.” Mr Lewis said average incomes had also not kept pace with the rise in median house prices.
“Average household income in Adelaide is currently $43,900, which is not high enough to service the debt on a $290,000 home,” he said. “This means people on that wage would not be able to buy a median priced Adelaide home unless they had a very large deposit.
“A recent International Housing Affordability survey rated Adelaide as the 27th least affordable city in the world. This is extraordinary on a world scale and it paints a bleak picture for people striving for home ownership.”
Filed under: Finance Tips, Home Loans & Mortgages, adelaide, home ownership, housing, south australia, stamp duty
