Of the total number of first homebuyers entering the market, less than 20 per cent purchase a new home. The overwhelming majority of first homebuyers are looking to buy the cheapest house, unit or flat they can get their hands on. In terms of expectations, most are seeking accommodation within 20 kilometres of work and with reasonable amenity and surrounding support services. These requests are hardly unreasonable in today's society.
So just how hard is it for Generation X to enter home ownership. Well perhaps an indication of the burden is best assessed by comparing first the house price to average income ratio of 1978 to 2008. In 1978 this ratio was 3.8 to 1 now this ratio is 9 is to 1, this means the median new house price is nine times the median annual income.
The amount of tax levied on the standard house in 1978 compared to today in part explains just how difficult it has become for Generation X. The price of a new home in Australia (based on weighted average of 8 capital cities) was $37,400 in 1978 today it is $469,000. Once again as a weighted average the accumulated cost of stamp duty, insurance and fees, local government regulations, and infrastructure charges was $3,390 in 1978 today it is pushing $85,000 once GST and other statutory charges are applied.
Despite these oppressive tax burdens Generation X is labelled as unreasonable and accused of expecting the spoils upfront. This is an interesting criticism, especially when we consider that this is a generation that is paying more tax (on average) than its predecessors, is working longer hours, operating in a user-pays economy and funding not only its own retirement but those of previous generations as well. Stop your whinging Gen X look how good you have it?
Chris Lamont is the Chief Executive - Policy for the Housing Industry Association. He is an economist with previous experience in both the public and private sector. Prior to joining HIA he was a Chief of Staff to a former Federal Minister. In 2008 he was appointed by the Prime Minister of Australia the Hon. Kevin Rudd to the National Housing Supply Council.
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Gen X and housing
I need to agree with you Chris and add a couple of important economic points.
There is an extra level of risk associated with home ownership for Gen X - which is simply that the so called housing boom was nothing of the sort - it was rampant speculation partially encouraged by the policies of the previous government and partially by a lengthy period of cheep credit. As a result house prices in Australia are grossly inflated, according to the World Bank the mean price of Australian real estate is currently a third higher than it should be given other economic indicators.
The ratio of mean house prices to mean income is higher in Australia than in any other OECD country, the average house in Canada costs roughly three times the average annual income, in Australia the average house costs more than six times the annual income.
As a result of such rampant speculation Gen X and Ys that have bought property in the last two years should get used to the term negative equity because few will not see the price they paid for their property in the next decade. Unless they got a particularly good deal anyone whose bought in Sydney in the last 12 months may as well resign themselves to working for the bank for the next quarter century, becuase they're already losing money. That goes double for any where beyond about 15 km of the CBD.
Not only has much of Gen X and Y been closed out of the market, those who have made their way in by the skin of their teeth should hang on to their jobs for dear life - because if they are forced to sell the resale value of the property is unlikely to cover the loan.
Arguments regarding fairness asside, the result is that gen x and gen y families simply won't be able to afford to settle down and have kids, either because they have mortgage repayments to meet and can't afford to take any time off work, or because they are renting and can't afford to take any time off work. Further deepening our demographic challenges.
And the position is fairly precarious - Australian real estate is currently the only asset class amongst Anglo Saxon countries which hasn't been significantly devalued in the current economic turmoil, yet it is, again according to the world bank, the most overvalued. Like so many problems this speculative bubble could and should have been dealt with five, six or seven years ago - yet at time all Mr Howard could offer was the comment that: "No one ever complained about he value of their house going up," clearly it hadn't occured to him to speak to his kid's friends about how it was going to effect them.
As a result we are faced with the twin challenges of a houseing shortage, and real estate as aon overprices asset class - the current government needs to figure out a way to increase the housing stock, without triggering a sudden fall in prices - a complex task which will require a multi-modal response. However, it is also important for the governement to remember that basic housing is a need, and not to sacrifice the furture of Australian families in order to rescue property investors.
JV Douglas -
technology writer by trade, luddite by conviction