How to make saving for a house more feasible for young Australia

| May 31, 2017

How to make saving to buy a house more feasible. Jasmine Flattery-Shirley explores the policy changes she thinks will help.

The reality is, whether we like it or not, Sydney is an expensive city. If you can’t afford to live here, or question the rat race that you must take part in in order to live here (like I and many of the people I know do), then you may have to look to buy elsewhere. That said, I believe there are some avenues available that would help make housing more affordable that are worth exploring.

There are three main ways one may come to own or acquire a house in Sydney:

  1. They manage to save enough money to buy one themselves. In this scenario I include joint ownership with a partner who has also saved their own money for a down payment, and any mortgage that may apply.
  2. They are given some form of financial support from someone (usually a family member such as a parent or grandparent). This may help with a down payment and mortgage repayments, or the property may be bought outright for them.
  3. They inherit property.

I will focus on the first scenario as I believe it is the most relevant for the purposes of this forum.

Firstly, the main reason people can’t afford housing is because their income is less than, equal to, or only fractionally higher than that of their living expenses. When faced with ridiculous rental prices, education costs, car insurance and registration fees, health insurance, internet bills, phone bills, electricity bills, gas bills, basic food costs, petrol, tolls, and other basic living costs such as clothing, home maintenance needs, and some birthday and Christmas gifts, it is a wonder to me how anyone can save to buy a house of their own volition as a young adult, let alone if they have children.

For example, my rent constitutes 32.8% of my net income. Once other residual costs are covered, the most I can ever manage to save (without any emergency expenses arising) is roughly $300 per fortnight. That would mean that in order to save a $100,000 down payment on my current salary (which is around the average full-time earnings in Australia), it would take 667 weeks, or 12.82 years. Note that this would require not taking a single holiday in that time and it also assumes I wouldn’t receive any interest or salary increases. Either way, home ownership in Sydney remains a very distant prospect for someone who still falls comfortably in the top 1% in the world (earning above US$32,400 annually).

In response to this issue, I propose some solutions that would assist citizens in making home ownership within the realm of possibility. These include the following:

  1. Make university education free again, more reasonably subsidised, or at the very least more realistically capped. I completed an undergraduate degree and a post graduate degree and my HECS debt is over $100,000. The postgraduate degree (which I needed to do in order to obtain suitable full-time employment in this job market) was over $90,000 alone. That sounds like a pretty healthy down payment to me. Alternatively, repayment requirements could be altered in a way that allows for savings to take priority at a young age. For example, repayments could commence much later and well above the current threshold of $55,874. I know that once I am more firmly on my feet financially I would be happy to pay my HECS at a higher rate at that time. For example, why not keep increasing the repayment percentage rate beyond the threshold of “$103,766 and above”? 8% is the highest repayment rate currently set by the government.
  2. A home affordability scheme could be created, much like a superannuation scheme, which requires workplaces to contribute a certain amount on the behalf of an employee to a home savings account. This may be bundled together as part of an attractive salary package, and called upon by the individual only for the purposes of buying a home. Alternatively, a model like this could be imposed by the Government. Much like the HECs scheme, enforced percentages could apply to a person’s income at incremental levels. This money would be held in something like a trust, with the condition that it can only be used for home investment.
  3. Rent control. The lower the rent, the less overhead costs, and the more we can save.
  4. Subsidies targeted at young Australians to enable them to be competitive in the property market. Lower the taxes of young Australians and increase the taxes of middle and older aged Australians to even the playing field. Alternatively, shift the way taxes are used overall so that basic living costs such as education, healthcare, and the costs of fresh food are better subsidised, requiring people to pay less in those universal areas, resulting in a greater ability to save.

Undoubtedly there are strengths and weaknesses to each of these proposals but I believe that they are certainly worth exploring and hopefully serve as some food for thought. Any response from Government to the housing affordability issue will reflect just how high a priority it is for the people in power with the means to make a difference.

Housing Affordability Online Consultation:

Q: What can be done to improve housing affordability?