Australia’s housing market has hit a crisis point, with the proportion of available houses for first-home buyers being only 12%. This figure goes beyond just a stat – it is a reflection of how structural imbalances have changed homeownership from being a commonality to being uncommon. These changes are not because of a single factor, but rather numerous effects of economic stress, lack of structural housing supply and various policy-related distortions which have gradually influenced the housing market.
Income Growth vs Property Prices
At the heart of the problem lies a widening gap between how fast property values are increasing and the increase in income over the last decade. For example, capital cities have seen a much greater increase in property values than wage increases in recent years. Even when there are periods of decline in the housing market, there will be very little change in property values to allow new buyers back into the market. Each increase in market prices raises the entry price for new buyers who then enter the market without any equity and, therefore, will suffer the most from the increased property prices.
The Impact of Higher Interest Rates
While property rates continue to fluctuate and possibly begin to settle in 2025, the ability for consumers to borrow has already been affected. Borrowers who previously qualified for a loan amount that was comfortable for them are now able to qualify for a significantly smaller loan amount, due to increased repayment amounts. Despite their financial stability, higher repayments reduce the maximum loan size banks are willing to offer. This lack of lending options has resulted in the closure of large portions of the market available for first-time buyers.
Housing Undersupply
In Australia, a long-term shortage of housing is a key factor in the high cost of housing. Delays in construction due to increased prices for materials as well as labour shortages, continue to add to the delay in the housing delivery process. The increased number of people moving to Australia and being students from overseas has also added to the demand for housing. If there are not enough homes available, then prices remain high, and many first-home buyers are forced to compete for low-priced housing.
Govt Policies that Inflate Demand
Government incentives to assist first-time homebuyers usually increase home buyer demand faster than the housing supply can keep up. These grants and concessions may provide greater access in the short run, but they create upward pressure on prices, which benefits the sellers and not the buyers. Also, tax incentives such as negative gearing and capital gain exemptions favour investors and increase competition for lower-priced residential property.
The Property Market Demands Adaptation
Due to the above mentioned reasons, first-time homebuyers are adjusting by buying smaller homes, relocating farther from urban areas, or postponing ownership completely.
The statistical reality that first home buyers can afford only 12% of all residential properties in Australia indicates a more significant structural problem than just a downward cycle in the economy. Without a large increase in the housing supply, a long-term policy modification, and sustained income growth, the threshold of affordable properties for first-home buyers will continue to decrease. A 12% figure not only indicates that first home buyers are becoming more limited in the number of homes they can afford; it also suggests that the Australian housing market will require significant reforms.
