Analysis by investment and advisory group Jarden Australia shows that purchasing an Australian home has increasingly become a multigenerational affair.
Jarden estimates that around 15% of borrowers are receiving an average of $92,000 from parents.
“If we assume the majority are first-home buyers, it would imply about 75% of first-home buyers were receiving some form of family assistance”, Jarden Australia chief economist Carlos Cacho said.
To add further insult to injury, 32% of first home buyers used various government loan schemes to get into the market in the 2022-23 financial year, according to data from the federal government agency Housing Australia (formerly the National Housing Finance and Investment Corporation).
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Australia’s homeownership rate has trended down for decades, as illustrated below:
Source: Shane Oliver (AMP)
The gap between median dwelling values and capacity to pay has also widened since the Reserve Bank commenced its monetary tightening cycle:
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To make matters worse, the hyperinflation of rents has made it more difficult for would-be first home buyers to save a deposit:
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The wicked combination of higher mortgage rates, record home prices, and soaring rents has meant that it has now become impossible for most first-time home buyers to purchase a home without family assistance.
The end result is that purchasing a home in Australia has become a multigenerational affair, with the ‘Bank of Mum & Dad’ and the ‘Bank of Grandma and Grandpa’ pooling together to push home prices higher.
Add the increase in foreign buyers and record immigration into the mix and you have a perfect storm for Australian housing affordability.
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Economist Warren Hogan was right when he said that “FOMO on steroids” is feeding house prices.
“People have the view that the shortage is going to last for a long time and that will mean prices will just continue to rise”, Hogan told The AFR earlier in the month.
“Australia has never had a severe shortage like this in recent history, so this is a major market failure”.
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“The reality is that there is price tension in the housing market because rents are going up, because of the shortage of rental property, which is underpinning demand from first-home buyers and investors”.
“It’s not just the bank of mum and dad, it’s also the bank of grandparents, or the bank of aunties and uncles. This is playing a much bigger role than it ever has before”, Hogan said.
Normally, 4.25% of rate rises from the Reserve Bank would have sent house prices plummeting.
The massive disparity between home prices and serviceability, however, serves as evidence that this is not a “normal” market.