Researchers have found it is no longer an option for millenials to buy their first home by cutting back on lifestyle luxuries, with close to half turning to the “bank of mum and dad”.
University of Sydney senior lecturer Dr Laurence Troy released the findings of a study on Tuesday that tracked the saving of 25-34-year-olds first home buyers in Sydney and Perth during the peak of soaring house prices.
The research team then zoomed in on 20 households across the two cities and spoke to them every fortnight for ten months to understand how they pulled together a home deposit.
“In that moment, the task was getting worse and worse, the only way you could get across the line was by getting financial contributions from their family to bridge that gap,” Dr Troy said.
The study found that the usual saving and budgeting strategies including cutting back on discretionary spending was not enough for households to keep pace with market increases.
About 40 per cent of 25–34-year-old first home buyers reported the need to seek help from their parents or a family member to get into the property market.
Skyrocketing home prices in the middle of the pandemic ballooned the size of deposits expected from home buyers.
“When we were looking at this, property prices went up, something like 25 per cent in Sydney over a 12 month period,” he said.
The research wrapped up near the end of 2021 just as interest rate rises started to soar.
“Once people had hit home ownership, it was less of a challenge for them in the sense that the key barrier was the cost of deposit,” Dr Troy said.
“But since then, those challenges are compounded by the interest rate environment and the cost of living environment.
“The goalpost is moving constantly.”
Almost three quarters of young adult renters reported they had less than $5,000 in savings, nowhere near enough for a deposit on a home.
The other part of the “saving conundrum” is the way that people are able to earn.
Some survey participants reported income fluctuations every fortnight, whether that be because they are self-employed or they work in particular industries.
“You’ve still got to pay your rent or mortgage, run your car and pay for groceries, and some of that stuff doesn’t change, but your income is all over the place.”
“It makes it really hard to plan for savings, or you are constantly having to dip in and out of savings to just cover your living expenses on a fortnightly basis.
In Perth, the situation is vastly different.
Dr Troy said first home buyers in the western capital can make trade-offs when it comes to the size and location of their future homes that will make a dent in the deposit price.
Homeownership rates are up around 70 per cent in Perth as compared to 61 per cent in Sydney.
“That 70 per cent is a high watermark for Australia in historical terms and Sydney hasn’t been close to that for a long time,” he said.
“If you’re trying to trade off by picking a cheaper suburb in Sydney, the difference that makes is so marginal, or it takes you so far beyond your proximity to your job or your social network.”
A 20 per cent deposit on the median dwelling price in Sydney is $220,000 and $106,000 in Perth.
“The kind of trade off some people were starting to talk about here was actually just moving city entirely,” he said.
One couple moved from Sydney to Brisbane halfway through the study for that exact reason.
The study found more than 95 per cent of the young adult renters surveyed do not come close to having accumulated enough savings for a home loan deposit.