Home ownership struggles will drive changes: Rick Cosier
Rroblems buying a home is a major issue for almost every Australian under 30, according to Rick Cosier, a financial adviser and Principal of Healthy Finances Ltd.
He noted on a CuffeLinks blog that a measurement of official house price data and mortgage costs by comparison website RateCity looked at the salary required for a single person to afford repayments on a 30-year loan.
The main criterion was that the individual could not spend more than a third of their income on housing costs. Here are the results for Sydney:
Median House Price: $825,000
Loan Size: $660,000
Interest Rate: 4.74%
Monthly Repayment: $3,439
Annual Income Needed: $137,556
But Cosier suggests these figures are not an accurate reflection on what is happening.
"First, few single first home buyers earn $137,556.
"Secondly, the median house price in Sydney is now a lot more than $825,000.
"Thirdly, people are clearly spending more than one third of their income on loan repayments."
He suggested property prices are more than seven times average income levels.
Whilst not many 30-year-olds earn $137,556, Cosier thought it’s quite possible that a 30-year-old couple can be jointly earning $120,000.
"Given the lower tax rates that two incomes generate over the single person, a 30-year-old couple could generate sufficient income at today’s interest rates to make the necessary mortgage payments listed above."
However, he noted home ownership in Australia has fallen from 71% to 67% in the last 20 years, and more significantly, for Australians aged between 25 and 34, the proportion has fallen from 39% to 29%, and for ages 35 to 44, from 63% to 52%.
First home buyers now make up only 13% of new home loans.
He observed that overseas buyers and investors appear responsible for much of the post-2010 surge, and favourable tax concessions are pushing homes out of reach for a high percentage of younger Australians.
Anecdotal evidence from clients suggests that the desire to get a foothold in the property market is causing many people to adopt strategies that are increasingly risky.
He suggests if the debt repayment becomes difficult due to unemployment, interest rate rises, a property downturn, divorce or an unexpected pregnancy, both the parents and the children could suddenly have a major cash flow problem.
"It wouldn’t take much for both to lose their homes."