How hard is it to buy your first property in Australia?

apartment house home

Ask any millennial and they will tell you how hard it is to buy your first property in Australia right now.

It’s not that they don’t want to, and it’s not that they are wasting all their money on turmeric lattes and avo smash brunches. 

No, the reason they are not buying property is because the system is so stacked against them at present. It is simply too difficult for most young people to be able to afford anything – especially in a major city.

Older readers might think this is codswallop, and that ‘I did alright in my day’. But the landscape has shifted significantly in the last 50 years, to the point where the outlook for most young people is currently very bleak.

With that in mind, what can be done?

Well, in this guide we will look at how hard it is to buy your first property in Australia and examine that very question.

A brief overview of Australian house prices

We all know house prices in Australia have risen over the years. But if you are not familiar with the full extent of this increase, it may well surprise you.

Not adjusting for inflation, the average prices of homes in 1990 was $192,609 in Sydney, $130,536 in Melbourne, $113,811 in Brisbane and $100,937 in Perth.

In 2020, those figures had risen to $1,154,406 in Sydney, $875,980 in Melbourne, $596,316 in Brisbane and $534,336 in Perth.

Perhaps most tellingly, when adjusted for inflation, the figures read as follows.

In 1990, the average prices of homes in 1990 would have been $368,035 in Sydney, $253,069 in Melbourne, $229,888 in Brisbane and $196,978 in Perth. Meanwhile in 2020, the average house prices should have been $925,000 in Sydney, $740,000 in Melbourne, $535,000 in Brisbane and $470,300 in Perth.

This data clearly shows then, that even taking inflation into account, average house prices across Australia are significantly higher now than they were 30 years ago.

But haven’t wages increased too?

One of the main criticisms made against millennials by seniors and baby boomers, is that wages are much higher than they were back in the day.

This is certainly true in terms of the actual average amount people received. For instance, in 1970, the average weekly wage in Australia was $84.80. While in 1990 it was $555.60, and in 2020 it was $1,737.10.

However, what these figures don’t show is just how far that wage went in terms of cost of living.

In 1970, the average house price in Sydney was $18,700. Which meant that a person’s average weekly wage of $84.80, translated into a yearly amount that was 24% of the average Sydney house price.

By contrast in 2020, the average house price had risen to $1,211,000. However, as the average weekly wage was $1,737.10, this amount sat at only 7% of the average Sydney house price.

So, it is clear that whilst house prices increased dramatically in the last 50 years, wages growth hasn’t kept up with that rate of elevation.

In short, this means that those wanting to buy a home had more money at their disposal in 1970 to be able to afford one, than people currently do in 2020.

Why are house prices so high right now?

Having established that wages growth has not kept up with house price increases, the obvious question to ask is why are house prices so high right now?

Indeed, housing and its general affordability is a major concern that has been regularly raised from several institutions in recent times, including the government, the RBA, the big 4 banks and various charities.

Effectively, there are many reasons why house prices are so high. For a start, when it comes to housing, demand is simply outstripping supply. This of course leads to increased competition, which serves to drive the prizes up.

Indeed, according to the Grattan Institute, if 50,000 extra homes were to be constructed every year for a decade, average house prices could drop by as much as 20%.

Another major factor is the record low interest rates, which enable banks and credit unions to incentivise buyers with low rates, cashback offers and other inducements – and only serve to increase house prices further.

Increased migration from overseas nationals, as well as more people choosing to move to regional areas had a significant effect in raising house prices too.

As has the prevalence of several government run schemes, like the First Home Loan Deposit Scheme (FHLDS), the New Home Guarantee (NHG) and the First Home Super Saver Scheme (FHSSS) – which has contributed to more houses being bought. 

For more information, check out first home buyers grant complete breakdown by Joust, this is a great resource that provides an in-depth look at what Governments can do to help first time buyers in Australia. 

How much do you need to save to buy a house right now?

Against the backdrop of rising house prices, and a general percentage decrease in how far your weekly wage goes, over the last 50 years, you can start to appreciate how hard it is to buy your first property in Australia right now.

But even if you want to buy yourself a home, it is not as straightforward as you would think it could be.

Most banks and financial institutions require you to have a deposit of 20% of the total value of the home, before they will entertain giving you a loan. Which for many people, especially single people, seems impossible to achieve.

For instance, in Sydney right now, with the average house price being near $1.2 million, you will need to have accrued a $240,000 deposit before you would be granted a home loan to buy the property.

Similarly in Melbourne, with average house prices being around $875,000, you will need to have saved $175,000 before the banks will support you.

While it is possible to secure a mortgage with a 5% deposit you will need mortgage insurance too – which can get a bit messy.

So, what can you do?

If you are serious about buying a property then you are going to need a plan, and a long-term saving strategy.

To kickstart this, one of the best things you can do is meet with a financial planner, who will be able to assist you to set up strategies that will enable you to meet your saving goals quicker.

Other things you can do include spending less money and making more money – either via second jobs or side hustles.

It is also worthwhile determining where you might be able to afford to live. For instance, if you are priced out of the market in Sydney, you may well find that you can afford to buy somewhere that is located a little further out of the city.

Do your due diligence to find out what suburbs, cities and regional areas may be the most affordable places for you to buy in.

At the end of the day, given how hard it currently is to purchase your first property in Australia, you are going to have to get creative if you want to eventually own a home.

In the short term, arguably your best solution is to move to a location where you can find more affordable properties.

Granted, it may not be the most ideal solution, but sometimes it is a must.