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Government interventions that have boosted demand for housing and the long period of low interest rates have exacerbated the affordability issues among Australians, particularly those in the younger demographics.

A study by the Australian Housing and Urban Research Institute (AHURI) showed that fewer younger Australians are becoming first-home buyers, in fact the average age of first home purchase increased from 26 to 31 between 1965-69 and 2010-14.

The AHURI study said policy in recent decades has focussed almost exclusively on demand-side measures that boost the borrowing capacity of FHBs.

Overall, affordability had a negative and significant impact on homeownership at age 30 to 34.

The study also showed that around 84% of aspiring first-home buyers face downpayment constraints while 74% struggle with repayments.

Professor Stephen Whelan from the University of Sydney, one of the study authors, emphasised the importance of focussing on supply-side measures to make homes more affordable and accessible to a wider population.

“Policy settings in Australia have focussed almost exclusively on demand-side measures that boost first-home buyers’ purchasing power, such as First Home Owners Grants and stamp duty concessions,” he said.

“Politically seductive measures such as first homeowner grants and tax concessions have failed to arrest declining rates of home ownership over time — a mix of supply-side and demand-side approaches would help more households who would not otherwise be able to buy a home.”

Prof. Whelan said structural tax-transfer reforms that go beyond the demand are needed to help deliver sustainable growth in homeownership.

“Current policy settings tend to disadvantage aspiring first home buyers and benefit existing homeowners,” he said.

“Reforms such as abolishing stamp duty for first home buyers, such as those currently underway in the Australian Capital Territory (ACT) are heading in the right direction.”

Prof. Whelan also cited New South Wales’ First Home Buyer Choice, which was repealed this year. The scheme allowed first-home buyers to opt for a land tax instead of paying for stamp duty.

Another area of concern is addressing the challenges around saving for a deposit and maintaining repayments.

In the early 1990s average households took just six years to save for a deposit — this rose to nine to 10 years by the late 2010s.

Mortgage guarantee schemes can help first homebuyers access the housing market without requiring an unattainable deposit; while shared equity schemes can help first-home buyers gain access to the market with a lower downpayment as well as make ongoing repayments more affordable,” Prof. Whelan said.

Prof. Whelan said there is also a need to encourage new types of long-term home tenure — an example would be a system where people can have a secure home for a longer term without needing to own the title.

“Government housing policy ambitions need to expand to include longer tenure alternatives such as rent to buy, shared equity, and affordable rental, along with social rental,” he said.

“These types of tenure can offer security and life-long wellbeing outside of homeownership.”

Housing Australia Future Fund (HAFF) — is it enough?

When it comes to supply-side policies, the recent passing of the Housing Australia Future Fund (HAFF) is the right step towards the goal of construction 1.2 million homes.

However, experts at RMIT University, which also participated in the AHURI study, said HAFF is unlikely to provide enough support to sufficiently increase supply.

RMIT lecturer Liam Davies said the fund will spend its interest earnings on social housing.

“It is like a term-deposit for social housing, where the money will not actually be spent, just the investment earnings,” he said.

According to the government, the HAFF will support construction of 30,000 dwellings over the next five years — this translates to an average of 6,000 dwellings per annum.

“The social housing system has not grown at the same rate as the general housing stock for many years,” Mr Davies said.

“According to the Productivity Commission, between 2011 and 2021 social housing shrunk from 4.6% of all dwellings to 3.7% of all dwellings — in proportional terms Australia has almost 69,000 fewer social housing dwellings today than ten years ago. That is an average proportionate decline of 6,900 dwellings per annum.”

Mr Davies said the to maintain current social housing stock of 3.7%, around 45,000 of the 1.2 million dwellings would need to be social — this is much more than what the HAFF is potentially promising.

On top of this, Mr Davies said to get social housing stock back to 2011 levels, 124,000 social housing dwellings are needed over the next five years, over four times what the HAFF is promising.

“Evidently the HAFF will not get us close to where we need to be. At best, the HAFF will slow down the decline of social housing in Australia,” he said.

“Much more investment is required to deliver the amount of social housing Australia needs, and while the HAFF won’t hurt, it won’t come close to solving the problem.”

A separate commentary from the Housing Industry Association also laid out broader reforms needed to help with the target, including planning systems enabling increased higher density residential development, elimination of onerous taxes on both investors and owner-occupiers, and strengthened financial regulations.

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Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
$2,408
Principal & Interest
Variable
$0
$530
70%
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5.94% p.a.
5.95% p.a.
$2,383
Principal & Interest
Variable
$0
$0
90%
5.95% p.a.
5.95% p.a.
$2,385
Principal & Interest
Variable
$0
$0
90%
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
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Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .

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Photo by Dorin Tamas’s Images on Canva.