Walls close in on Australian first home buyers

Corelogic’s 2022 housing affordability report, released last week, showed that aspiring first home buyers are being squeezed hard by surging mortgage payments and rents.

While the proportion of income required to service a mortgage remains below record highs, it has risen substantially over the past year across both the capital cities and regions:

Portion of income used to service a mortgage

Moreover, the portion of household income required to service new mortgage repayments (41.4% nationally in March 2022) is now above the decade average of 36.5%.

As explained yesterday, Australia is facing the sharpest increase in mortgage repayments on record over the next two years, based on economist and/or market interest rate expectations. This would mean that mortgage repayments as a proportion of household income will soon soar way above the 2008 peak of 54%.

At the same time as mortgage repayments are ballooning, aspiring first home buyers are also suffering soaring rental costs, which makes saving for a deposit more difficult.

According to CoreLogic, the proportion of household income required to service rents rose to 30.6% nationally in the March quarter of 2022, up from 28.5% in the March quarter of 2020. This increase was led by regional Australia where rent servicing rose to a record high 34.0%:

Portion of household income used to service rents

The rent servicing burden is set to rise further given national rental growth reaccelerated to 9.0% in the year to April 2022, and is now running at more than triple wage growth:

Australian rental growth

The extreme headwinds facing first home buyers helps to explain why both Labor and the Coalition have rolled out new subsidies over the federal election campaign.

But history shows that these types of demand-side policies tend inflate prices, rather than expand home ownership rates, and are self-defeating over the longer-term.

Unconventional Economist

Comments

  1. hareebaMEMBER

    It was fun watching Leigh Sailes make Scummo very uncomfortable last night. Never seen a more desperate politician trying to hang on to power. $1.28 seems good odds for Labor.

    • Squirm Morrison did, yet I’m still concerned people, the young in particular, will vote him and the LNP in based on his and the Morrison/LNP lies. Too many believe the BS that trickle down economics is good and they will benefit from it when they are actually being robbed and disadvantaged 🙁

        • Muttafukaburrasaurus.MEMBER

          They have more reason than most to vote the liar out.
          I’m more concerned a portion of usually ALP/ green voters hate Morrison publically but love the appreciation in their home value and cheap $$ from pandemic pork.

      • ErmingtonPlumbingMEMBER

        I’ve spoken to a few Younger people about being able to use their super to buy a home.
        All of them thought it great but were surprised at how little of it they could access if they did.
        This is why it is such a late policy announcement. The idea sounds good to many but doesn’t really stack up when one looks at the details. Which most people haven’t and with our Useless Media nobody is telling them those details.

        • The common misconception is that it’s a $50k draw down. No, it’s based on already having a 5% deposit (whatever that is!) and the ability to take out up to $50k PER PERSON.

          It’s rotten, ill considered and inequitable. Just another wealth transfer instead of dealing with the structural issues in tax and the prudential issues of loose credit going to investors.

      • drsmithyMEMBER

        Squirm Morrison did, yet I’m still concerned people, the young in particular, will vote him and the LNP in based on his and the Morrison/LNP lies.

        Uh, what ? Have you ever looked at a voting intent breakdown by age ?

        It ain’t the yoof who keep the tories in power.

        Too many believe the BS that trickle down economics is good and they will benefit from it when they are actually being robbed and disadvantaged

        Outside the Young Liberals, I doubt you’ll find many who think trickle-down works. They’ve got the life experience to know otherwise.

  2. DingwallMEMBER

    Scumbag and cronies ensured FHB and FOMO drove a nice little feeding frenzy. Fixing supply and dampening demand just doesnt seem to be on any agenda

  3. I know couple of friends who were looking to sell their houses to in auction both have passed in.Having no offers both are going to put their properties up for rent.I am sure there will be many more like them who will flood the rental market.So shouldn’t rents fall in the next few months?

    • ErmingtonPlumbingMEMBER

      Yeah. I suspect a lot of property owners are/will be kicking out tenants in preparation for sale before the crash.
      Once that fear of getting less if I sell later passes Things will change.
      But until then its gunna get worse for Tenants.
      Especially with Immigration getting ramped up again.

      • We saw a lot of this with over stretched landlords during the last mini downturn (houses down 10 to 15%)
        Tenants were simply shown the door, F’off and don’t do any damage on the way out was the message from many landlords you wanted to prepare their Investment prosperities for a quick sale.
        Many of these landlords kept the rental bond, because they needed it.
        Many of the landlords evicted good tenants in the Xmas period because they had time off work and wanted to get the house ready for a quick sale
        Many of these landlords proved themselves to be the biggest a55wipes on gods green earth
        And this is how Aussie get ahead, this is how successful Aussies Invest. This is the society we’re building.

        • Yep. I was on the receiving end of this treatment. And if I thought the selling LL was bad, boy was I in for a shock. The new (young) LL’s were ruthless.

          • Good point (and something that I’ve heard time and time again)
            If you want a good landlord make sure that they can afford to ride the ups and downs of the RE market / Interest rate curve.
            Life really sucks for a tenant when the Landlord finances are tight (and the rental market is even tighter)

          • New and undercapitalized (over committed) landlords all have the following characteristics
            1) expect a rent increase after the initial 6 month lease is up regardless of what the market is doing
            2) don’t expect any repairs to be done without a fight or some legal requirement (I’ve seen floor boards so rotted that kids fell through the flooring but the landlord didn’t address the issue until someone actually fell through and injured themselves
            3) fences won’t be maintained even if sections have literally fallen over
            4) any and all sewer blockages will be blamed on the tenant
            5) AC heating and hot water are almost considered optional extras (be glad if they sort of work occasionally)

            Good landlords simply aren’t like this they do maintain the property and expect / budget a reasonable amount for said repairs.

        • Magnus MaximusMEMBER

          My brother used to work in real estate in the tenancy section and was shocked the number of phone calls he would receive on rent day from landlords saying they hadn’t seen the money hit their accounts and really needed it etc. Also the constant dodging over repairs. If property really is an “investment” than there are a lot who are operating while insolvent.

          • If property really is an “investment” than there are a lot who are operating while insolvent.

            In a way, negative gearing is a form of insolvency.

          • I wonder if mine might be like that, or just lazy? Reported a bunch of stuff broken or not working 3 weeks ago, still no update. Do you think I’ll have to threaten to send the rent to the tenancy board instead until repairs are done?

      • BoomToBustMEMBER

        That already happened to us, house went to auction last week and did not sell. Asking price prior to action was $1.08 – $1.15 million, its now up for sale with a price tag of $1.18-1.22 million – can someone say the original price was under quoting by the agent. We are tempted to report them.

        • Not in Victoria at least. They hide behind the fact that the official reserve price is finalised on the day of the auction. It can be way off despite the agent and vendor setting the reserve price days or even weeks before auction day in most cases. Nice racket ey.

  4. Cameron Murray drinks the housing kool-aid
    https://www.smh.com.au/national/house-now-super-later-life-is-too-short-to-delay-purchase-20220516-p5alpr.html
    Basically he has joined the abolish Super camp, or at the very least allow the young to use it for housing …..
    I don’t think he’s wrong BUT is now the right time to implement such a change?
    I guess that begs the question: If not now then when?
    I’d answer : when our local investment environment presents the greatest array of viable alternatives
    when’s that likely to happen? Well never based on our current trajectory.
    I suspect Cameron is smart enough to have nutted out, the never ever going to happen nature of local alternative Investments out performing housing, especially if housing gets a super boost.
    Unfortunately everyone that doesn’t buy a house will be thrown under the bus, for just that momentary change in traction, baby’s will be thrown under the bus, kids will be thrown under the bus, the aged and infirmed will be thrown under the bus, everyone will eventually end up under the bus, all for that fleeting moment of extra traction.
    Accept it, this is just how our nation invests,
    Cameron has finally wised up, so should you!

    • I think there are actually two things here:
      1. Is super actually worth it
      2. Should you be able to use your super to transfer wealth to boomers.

      • Is super actually worth it?
        No, absolutely not worth it, especially if you compare the gains enjoyed by those who speculated on housing.
        Boomers simply know which class of assets Aussie value the most.
        When you’re investing for the long haul nothing beats RE investing, especially undeveloped but soon to be rezoned real estate.
        We could crush this unearned advantage with the flick of a pen, tax it, or remove advantage by expanding the pool of rezoned (remove zoning approval for individual house builders) There are a hundred way to reduce this advantage BUT at every turn for the last 30 years Aussies have chosen to entrench this advantage, they’ve added to it when logically they should have substracted, they’ve created additional advantage by reduced Taxes, by reduced costs (low interest rates) , it’s not moral it’s just what we do, and Boomers know this better than anyone.

    • Basically he has joined the abolish Super camp, or at the very least allow the young to use it for housing …..
      I don’t think he’s wrong BUT is now the right time to implement such a change?
      I guess that begs the question: If not now then when?

      He, like the rest of MB, is completely wrong abut super. They all wank on about minutiae of tax settings, which in turn reflect on foregone tax receipts, while ignoring the abstract concept of superannuation.

      Whatever your salary is… referring it to an index of 100….. this is not your remuneration…. your remuneration now is 110. last year it was 109.5, and in a ALP ideal world it would be a 115. This figure above 100 is your compulsory super.

      This is a policy to enforce compulsory savings, as so your build your own retirement capital.

      That is the abstract, in its entirety.

      Super in itself, is a trust, nothing more. A (superannuation) member is a beneficiary of this trust. However, as opposed to regular trusts, which must distribute income, there are two changes a super fund have which are unique.

      The first is this type of trust has a preservation status. This means all monies are maintained, and all inbound monies cannot return to the member until they meet a condition of release… based on their PRESERVATION status, the most common typically being age 65, or becoming permanently disabled.

      The 2nd difference is as an incentive, the tax rate on an accumulation account is 15%, as opposed to the prevailing corporate rate of 27.5%, or 30%.

      That is the entire difference. There is no difference about investments (research shows industry funds outperform… ;LULZ).

      A super fund can invest 100% of its balance in term deposits. This will give the same return as term deposits invested in your own name, A super fund can invest in BHP shares, and it doesn’t have access to a different class of shares which pay a different dividend rate.

      They return the same amount.

      All in all, this quarantined (preserved) status again, is for one outcome…. we may even call this the SOLE PURPOSE TEST. Forced savings to have beneficiaries accumulate capital for their retirement.

      That’s what its purpose is, not funding house deposits, or repaying HECS debt, or vain women funding boob jobs, or lesbians funding IVF.

      Forced savings for retirement.

      So what does this monologue above have to do with this proposed policy….

      With the 10% SGC rate… we still tax home 100% of our salary, then pay our PAYG tax….

      The purpose of this PAYG is to buy houses, buy food, send kids to school, etc.

      If our PAYG salary is insufficient to buy a house, it means there is fault with the housing market, and the price settings need to be fixed.

      We know this is a setting out of whack because there was a time when our salary could afford a house.

      The answer is to fix the market price settings, not access super to fund a broken price setting.

    • Good old MB moderation…

      With Cam, he like the rest of MB, is completely wrong abut super. They all moan on about minutiae of tax settings, which in turn reflect on foregone tax receipts, while ignoring the abstract concept of superannuation.

      Whatever your salary is… referring it to an index of 100….. this is not your remuneration…. your remuneration now is 110. last year it was 109.5, and in a ALP ideal world it would be a 115. This figure above 100 is your compulsory super.

      This is a policy to enforce compulsory savings, as so your build your own retirement capital.

      That is the abstract, in its entirety.

      Super in itself, is a trust, nothing more. A (superannuation) member is a beneficiary of this trust. However, as opposed to regular trusts, which must distribute income, there are two changes a super fund have which are unique.

      The first is this type of trust has a preservation status. This means all monies are maintained, and all inbound monies cannot return to the member until they meet a condition of release… based on their PRESERVATION status, the most common typically being age 65, or becoming permanently disabled.

      The 2nd difference is as an incentive, the tax rate on an accumulation account is 15%, as opposed to the prevailing corporate rate of 27.5%, or 30%.

      That is the entire difference. There is no difference about investments (research shows industry funds outperform… ;LULZ).

      A super fund can invest 100% of its balance in term deposits. This will give the same return as term deposits invested in your own name, A super fund can invest in BHP shares, and it doesn’t have access to a different class of shares which pay a different dividend rate.

      They return the same amount.

      All in all, this quarantined (preserved) status again, is for one outcome…. we may even call this the SOLE PURPOSE TEST. Forced savings to have beneficiaries accumulate capital for their retirement.

      That’s what its purpose is, not funding house deposits, or repaying HECS debt, cosmetic surgery, or funding IVF.

      Forced savings for retirement.

      So what does this monologue above have to do with this proposed policy….

      With the 10% SGC rate… we still tax home 100% of our salary, then pay our PAYG tax….

      The purpose of this PAYG is to buy houses, buy food, send kids to school, etc.

      If our PAYG salary is insufficient to buy a house, it means there is fault with the housing market, and the price settings need to be fixed.

      We know this is a setting out of whack because there was a time when our salary could afford a house.

      The answer is to fix the market price settings, not access super to fund a broken price setting.

      • I wish our Aussie Super really functioned this way, but in the real world ….
        Australian super invests very little in our future, matter of fact it’s basically just another Ponzi scheme.
        How sick will super look (for those currently invested in it and enjoying its rewards in retirement) if our young are no longer required to contribute?
        It’ll be one sick puppy with about the same appeal as “private health insurance” to a fit healthy under 30 person. (minus the Medicare levy)
        We’ve all seen what’s happening to health Insurance exactly the same fate awaits Super if our young people have the option to opt out. and btw the closer we get to mass Boomer retirements, the sicker Super looks (to the young) and the less likely they are to contribute one penny more then is absolutely required.

        • I wish our Aussie Super really functioned this way, but in the real world ….
          Australian super invests very little in our future, matter of fact it’s basically just another Ponzi scheme.

          I sit here an point it to our entire investment banking industry… they’re all bottom feeders.

          Virtually al investment monies are either indexing into the ASX8, or wildly speculative, bat-sh!t crazy investments that end up funding supreme court barristers most of the time.

          Why did FMG have to get finding off shore, for example?

          1% of super monies is still $150 billion, what if made available to expert venture capitalists for entirely positive Australian outcomes. But it’s the same symptom of “why housing?”…. or “why mining?” Because it’s easy.

          But this is still minutiae, and a very easy change

          How sick will super look (for those currently invested in it and enjoying its rewards in retirement) if our young are no longer required to contribute?

          The alternative is having the discipline to fund it themselves, and the full corporate, or MTR rate…

          It’ll be one sick puppy with about the same appeal as “private health insurance” to a fit healthy under 30 person. (minus the Medicare levy)
          We’ve all seen what’s happening to health Insurance exactly the same fate awaits Super if our young people have the option to opt out. and btw the closer we get to mass Boomer retirements,

          Health insurance vs car insurance is probably the most perfect example of boomer narcissism and selfishness.

          An insurance scheme is a pot of money, where everyone puts in, for a very few to take out. In other words if you were to do a cost benefit analysis of inflows vs outflows, members of insurance schemes have many ‘losers’ for a few ‘winners’.

          The healthy mindset is to understand you will be a loser if you enter an insurance scheme, and if you are in the minority and do require your claim, then you will be looked after.

          When it comes to health insurance, the ‘winners’ typically are those who are older. It’s not really a feature of virtue or vice, but more of chronology. Everyone ends up getting old for example. So the ‘not old’ tend to put in money to underwrite those who are old.

          What boomers did here was rig the game so the young paid higher premiums by way of premium equalisation, if you compare to a proper actuarial table, and punished for opting out for too long.

          Boomers made sure an excessive insurance premium burden was placed on the young, those who are paying the most for least return.

          Now compare to car insurance. Claims data shows young people claim most, again not by virtue or vice, but inexperience. In this instance the ‘losers’ would be the more experienced drivers paying for claims made by the ‘winners’, those having car crashes more often.

          A general pool thesis too.

          What do boomers do? They form their own insurance schemes, excluding the younger drivers, excluding the claimants.

          If only young people could form their own pool for health insurance, excluding the claimants ehh?

          the sicker Super looks (to the young) and the less likely they are to contribute one penny more then is absolutely required.

          SMSF’s are not far away for being a $700 p.a. proposition. These are still 15% tax rate corporates, i think you’d need to be properly advised if you’re electing to walk away from this,.

          • I don’t think I’d like to see 1% of Super made exclusively available to “expert venture capitalists” because Australia just doesn’t really have these experts. However create a fund with $150B in it and I guarantee you we’ll have plenty of the usual lads putting their hands up to be considered (and somehow certified) to be “expert venture capitalists”. They wouldn’t know anymore than they do today and their investments decisions would preform no better than wild assed guesses oh but the fees wow the fees.
            From my experience they’d also find a way to exclude genuine experts from participating (or being needed)— cynical maybe but past experience certainly suggests this outcome.

          • I don’t think I’d like to see 1% of Super made exclusively available to “expert venture capitalists” because Australia just doesn’t really have these experts.

            There was a time Australia had zero industry.

            At its peak, we had 13 car manufacturers in Australia, we had CAC design and build indigenous aircraft. I think China would say it had the same experience over the prior 50 years.

            Experts don’t pop up like mushrooms, it takes a commitment to develop experts and often contemporary experts to train future experts. I think a major part of this is called the tertiary education system.

            So if you want to be experts in something, it takes time and is funded by way of economic surplus… which the super system is.

            However create a fund with $150B in it and I guarantee you we’ll have plenty of the usual lads putting their hands up to be considered (and somehow certified) to be “expert venture capitalists”.

            You will have bottom feeders everywhere.

            We had it in agribusiness 15-20 years ago, we have it in those chasing carbon credits, and very recently, defence spending now. It is de jure practice in property development.

            We can measure VC success however. 10 separate pools of $15 billion each, all benchmarked against each other, etc? Investment banking is the ‘expertise’ in allocating capital. It does actually exist in the private business world.

            We (should) want this, to put a mere 1% of our super capital to productive use.

            They wouldn’t know anymore than they do today and their investments decisions would preform no better than wild assed guesses oh but the fees wow the fees.

            Fees are extracted for indexing the ASX8, and from the industry fund side, their VC is CBD office buildings….

            From my experience they’d also find a way to exclude genuine experts from participating (or being needed)— cynical maybe but past experience certainly suggests this outcome.

            That’s called diversity quotas. Explicitly employ companies that do not have quotas as part of their hiring practices.

            My point is our superannuation savings regime can deliver a lot more than the usual bottom feeders index investing into the ASX8 every fortnight.

  5. Muttafukaburrasaurus.MEMBER

    I would be very surprised if a age pension is still available in 20-30 years.
    The start of co-contribution ‘model’ will sink Medicare and eliminate many nationally funded programs.
    Immigration is negative (services demand) not positive (tax base increase) along with just about everything else going on in the great Australian sell out.

    • I would be very surprised if a age pension is still available in 20-30 years.

      It was envisaged to be funded out, but Boomers have been a plague locust on this as well.

      Younger generations being forced to take $700,000 mortgages for a $300,000 house means they will never pay of this off until retirement, namely accessing their super funds. This will have the two prong attack of diverting prolonged mortgages payments away from savings, as well as depleting super balances at retirement.

      Remember, never get in the way of a boomer and someone else’s money.

      • You are ascribing powers to your (undifferentiated) mass of boomers that only belong to the government, not to mention that younger voters outnumber the boomers by more than 2 to 1. House prices are high because of government policies on urban planning, immigration, credit, taxation, foreign investment, insurance, and many other matters. The real decisions are being made by the topmost few of the top 1%. They own the mainstream media and can shape public opinion, and they also own the politicians who supposedly represent us, because they depend on their donors for election funding, favourable coverage in the media, and lucrative careers and investment opportunities after they leave politics. Some of the elite and their tools in the media and politics are boomers, of course, but this is really a class issue. Half the unemployed are over 50, and they are more likely to be long-term unemployed. Women over 55 are the fastest growing group of homeless.

        It is true that the boomers got a better deal for most of their lives. This is because the elite only make concessions if they feel threatened, such as by the election of radicals and rowdy protests, or even rioting. Many people were radicalised by the Great Depression, and the elite were also confronted by huge numbers of disgruntled young men returning from World War II with military training, so they decided to share the wealth, rather than risk losing all of it. See Peter Turchin

        https://aeon.co/essays/history-tells-us-where-the-wealth-gap-leads

        “The US elites entered into an unwritten compact with the working classes. This implicit contract included the promise that the fruits of economic growth would be distributed more equitably among both workers and owners. In return, the fundamentals of the political-economic system would not be challenged (no revolution).”

        “But by the late 1970s, a new generation of political and business leaders had come to power. To them the revolutionary situation of 1919-21 was just history…”

        • And you are enacting a Pavlovian boomer response of “it’s never our fault!!!”

          House prices are high because of government policies on urban planning, immigration, credit, taxation, foreign investment, insurance, and many other matters. The real decisions are being made by the topmost few of the top 1%. They own the mainstream media and can shape public opinion, and they also own the politicians who supposedly represent us, because they depend on their donors for election funding, favourable coverage in the media, and lucrative careers and investment opportunities after they leave politics.

          Yes, and these 1% appeal(ed) to the boomers 20-25 years ago for one reason.

          You work shy, profligate spenders have no where near enough for retirement, you won’t accrue enough by age 65 and you won’t accept being as modest as your parents so the age pension own’t be enough.

          What we will enact is you can sell your $300,m000 house to your kids for $700,000. That unearned $400k will be a nice kicker, and the only cost is the future wellbeing of your kids, your grandkids and your culture.

          Thus, the SUBSEQUENT policy decisions were urban planning, immigration, credit, taxation, foreign investments… to underwrite this boost in prices.

          Thus the same politicians got elected because it preserved this unearned windfall to boomers. That’s fine, it is completely rational to fall for this, and only a feeling of envy is to keep harking on this… we are not.

          What we are now saying is that for now abuot 10 years, after witnessing this, we are now saying the “urban planning, immigration, credit, taxation, foreign investment” factors which have led to high housing prices are now causing too much harm.

          This has to stop.

          Now a cessation of this find an major unwinding of this unearned gain the boomers have had, and that’s where the galling aspect is.

          They benefitted, thus any correction has to be worn by them as well. That’s what they’re refusing to do.

          The reality is boomers can’t have their properties at 14 times wages, they can’t retire 21 years before their life expectancy,, they can’t have ‘free’ medicine. This needs to change.

          Some of the elite and their tools in the media and politics are boomers, of course, but this is really a class issue.

          Of course it’s a class issue, but they maintain power by appealing to segments of laymen.

          Boomers are the ultimate collaborators to this. They’ve collaborated in the destruction of the kids, grandkids and culture.

          Half the unemployed are over 50, and they are more likely to be long-term unemployed. Women over 55 are the fastest growing group of homeless.

          Nothing prevents collaborators from being victims.

          Nor is the mature life in dignity a natural law.

          In fact it is an institute of our culture, a culture which boomers led the dismantling of.

          • I resent the implication that I personally had anything to do with this, not to mention that I am a bit too old to count as a boomer. I have been putting neoliberal politicians last for decades, more than most young people are willing to do,

            https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2022/April/Voting_patterns_by_generation

            and have enough savings to live reasonably comfortably. I honestly don’t care if my house is worth less, as I hope to be carried out in a box. All that I get out of high house prices are higher council rates and insurance premiums.

            I note that you had nothing to say about the second part of my post. You have the numbers. You should stop whining about boomers and fix the problems. Protest, as many of the boomers did when they were young, and not only about issues that affected them. Vote out the major parties and vote for people who will tax the hell out of windfall gains from real estate, stop coddling property investors, make the various soft forms of corruption illegal, stop mass migration, and seriously address our environmental problems.

          • I resent the implication that I personally had anything to do with this, not to mention that I am a bit too old to count as a boomer. I have been putting neoliberal politicians last for decades, more than most young people are willing to do,

            Group psychology is different to individual psychology.

            This isn’t about you.

            and have enough savings to live reasonably comfortably. I honestly don’t care if my house is worth less,

            Enough do care, and enough politicians know they care.

            as I hope to be carried out in a box. All that I get out of high house prices are higher council rates and insurance premiums.

            I note that you had nothing to say about the second part of my post. You have the numbers. You should stop whining about boomers and fix the problems. Protest, as many of the boomers did when they were young, and not only about issues that affected them. Vote out the major parties and vote for people who will tax the hell out of windfall gains from real estate, stop coddling property investors, make the various soft forms of corruption illegal, stop mass migration, and seriously address our environmental problems.

            So the message is now “It’s not our fault, it’s your fault because you don’t protest enough”?

            Messages like this carry more weight than anything I could ever say, so for that I thank you.