The problem with first home buyers isn't affordability, it's expectations
We're not asking the right questions. That's why the property industry is getting so many misleading answers about important issues.
I think this explains, in part, why so many believe we have an affordability crisis and a housing shortage, when so much of the research data contradicts these widely-held beliefs.
Surveys of prospective first home buyers usually ask whether they think they can afford a home. The answer is meaningless, or at best misleading, unless there are further questions.
Those might include:
- Why do you think you can't afford to buy?
- Have you tried to buy?
- Where have you looked?
- Are you willing to compromise to get into the market?
The big problem, as I see it, is not an affordability problem but an expectation problem.
If you read between the lines in industry surveys and street interviews by media, it's clear many wannabe home buyers have a perceived problem because they've absorbed newspaper headlines and looked no further.
Why bother when you read daily that prices are through the roof (when in reality this is true only of Sydney)?
Others have a problem because they want their dream situation in their first purchase. People are quick to complain they can't afford a home but then we discover they want to live in a million dollar suburb.
Many commentators on real estate issues such as affordability apparently believe nothing ever changes. The assumption is that the current generation of young adults want what their parents wanted and should behave accordingly. That assumption is wrong.
The big problem, as I see it, is not an affordability problem but an expectation problem.
When the market share of first time buyers declines, it's assumed there's an affordability problem. No other option is considered. The possibility of demographic change is overlooked.
This is the nub of the issue because it's clear that today's 20-something's have different priorities to their parents. Married with kids and a mortgage before the age of 30 is not on the bucket list. Lifestyle takes priority and commitments can wait.
There's a similar issue with the idea of an undersupply of housing. Individuals and organisations stating under-supply as a fact (one that's accepted by many journalists without question) also fall into the trap of believing nothing changes.
Their analysis is flawed because they're using out-dated models about how many new dwellings are needed for a particular level of population growth. The assumption is that the average household size is X and if you divide population growth by X, that's how many houses should be built.
But a lot has changed. Young Australians are staying longer at home with their parents. Overseas migrants comprise a major chunk of population growth but it's coming from non-traditional sources with different household patterns.
Household sizes are rising again. Whereas in the past the typical household was a small family in a big house with surplus bedrooms, people are now buying homes that reflect their actual needs - e.g. opting for a two-bedroom apartment rather than a large, expensive and wasteful four-bedroom house.
The bottom line is that housing demand is created when someone buys a block of land and engages a builder. If that's not happening to the degree many expect because of what their formula tells them, then the formula is flawed.
The industry that complains about the alleged housing shortage is the industry whose job it is to build houses. If the vast undersupply they claim is real, there's a massive opportunity being missed by the industry doing the grizzling.
The industry will continue spinning its wheels until it starts asking the right questions. If there's a shortage, where are the queues at housing estates? And why is there no rental growth? And what are the real reasons young people have stopped buying in numbers?