By Nerida Conisbee, Chief Economist, Ray White
This week I take a look at how the pandemic pushed down the average age of first home buyers and what we can learn from this about getting more of them into the market.
First home buyers got a little bit younger during the first year of the pandemic.
The average age of first home buyers in 2021 was the same as it was in the two years before the pandemic.
Of interest however is that the average age dropped in 2020, driven by a range of factors that made it a lot easier for first home buyers to get into the market in that year.
What drove it? And can we use what happened to help us work out what works best to get first home buyers into the market?
In 2020, the average age of first home buyers dropped to 32.6, a year younger than the average age in both 2019 and 2021.
In the depths of the early stages of the pandemic, first home buyers were able to get into the market a year younger at a time when we were in a recession, there was no certainty of a vaccine and there were predictions that house prices were going to fall by 30 per cent.
Despite all this, first home buyers got younger and in some places like Victoria, Western Australia and Canberra, we saw record numbers entering the market.
While property market conditions were highly uncertain, first home buyers became far more confident about getting into the market for a number of reasons:
- Interest rates hit record lows and it became easier to get a loan.
- There were more government incentives available particularly focused on new development such as HomeBuilder nationally, as well as more generous state based incentives.
- Price growth was slow and this allowed first home buyers to take their time in making decisions.
- Investors were far less active and this provided less competition for first home buyers.
- Savings rates increased as we were stuck at home more.
Based on this, what are some things that can be looked at to help first home buyers:
Slow down price growth
It is difficult to slow down price growth but a fast moving market is stressful for most people looking to buy.
And given that most sellers are subsequent buyers, it is most often stressful for sellers as well.
For first time buyers, a slower market gives them time to make decisions and not feel rushed.
There are many ways you can slow down pricing – restrict finance, increase mortgage rates and increase housing supply.
All of these are used at various times when the rate of lending growth becomes too high, or rental vacancy falls too low.
The challenge with raising rates and restricting finance is that it does tend to lead to a fall in first home buyer activity – prices slow but measures to do this tend to restrict finance to first home buyers more so than other borrowers.
Increasing housing supply is the gold standard when it comes to affordability – build enough houses for people to live in and rental rates and prices stabilise.
The challenge here is that land supply is limited in most capital cities, servicing new estates is expensive, land supply can sometimes be in locations that are less desirable, planning can get complicated and of course, higher densities are often rejected by residents used to living in less dense suburbs.
Provide help in getting a deposit
Most studies show that getting a deposit together is by far the most difficult part of getting into the housing market for first home buyers.
Most government incentives do this, ranging from cash incentives for buying a new home to providing a discount on stamp duty.
Schemes like the First Home Loan Deposit Scheme allowed lower income first home buyers to use a much lower deposit without having to pay mortgage insurance
Encourage higher rates of savings
The pandemic led to people saving more because there was much less to spend money on while locked down.
In a more normal environment, encouraging people to save is more difficult.
One solution is to allow people to use their superannuation.
The problem with this however is that the family home is an illiquid asset that can’t be cashed in at retirement, resulting in the potential for a significant cash shortage in older age.
Schemes like the First Home Super Saver Scheme does provide a low tax way to increase savings for a new home
While this is sometimes flagged as a way to get first home buyers in the market, it is problematic in that it restricts the amount of rental housing available, leading to rental increases.
Unfortunately there is not one simple scheme that can provide an easy way for first home buyers to get the homes they want in the locations that they want to be in.
While it remains important for people to own their own homes, particularly at retirement, discussion around affordability is set to be contentious at the upcoming federal election and beyond.