The rise in home prices is contributing to the decline in housing affordability across the country. Home ownership has become a more difficult goal, particularly for young adults, with new data revealing how these pressures may be causing more of them to remain at home.
According to Census data, home ownership rates have declined slightly in the past three decades from 69% in 1991[1] to 66% in 2021[2].
While this decline may seem insubstantial, a notable trend emerges when we look closer at homeownership trends by age.
The likelihood of owning a home has dropped by 10.2 percentage points for those aged 25-29 and by 9.4 percentage points for those aged 30-34 in 2021, compared with those in the same age groups in 1991. Not only are fewer young adults owning homes, but the rate of decline in home-ownership is also more rapid.
Several factors are contributing to this trend, including the rising number of people completing tertiary education and the overall increase in life expectancy in the country, resulting in later entry into home ownership. However, one of the key drivers is the ongoing increase in home prices.
The increase has not only impacted affordability but has extended the time required to save for a deposit, which is having a greater affect on young adults, who are often first-time home buyers.
This is evident when we look at the proportion of 20-34 year olds living with their parents over the past few decades.
For all age groups between 20-34, the share of people living at home has increased substantially since 1981.
While only just more than a third of 20-24 year olds lived with their parents in 1981, almost half of those in the same age group did so in 2021.
Almost one-fifth of 25-29 year olds are now living at home compared to just one-tenth forty years prior.
The proportion of 30-34 year olds living with their parents has doubled, increasing from 3.8% to 7.8% over the same period.
The upward trend in these proportions signify the increasing difficulty of living independently and purchasing property as a young adult now, compared with previous generations.
With properties costing more than they have historically, many younger Australians have no choice but to remain at home for longer.
Although this can be seen throughout the country, the proportion of young adults living with their parents differs across regions.
Analysing the relationship between median sale prices of SA4 regions* and the respective share of 20-34 year olds living at home shows that there is largely a positive relationship between the two.
Areas with higher median home prices tend to have a larger proportion of young adults living at home compared with areas with cheaper housing.
New South Wales, Victoria and Queensland regions have some of the highest shares of people aged 20-34 living with parents, with the exception of inner-city areas, where this demographic often opt to live independently for greater access to education and jobs.
Despite these challenges for the youth in our country, there are recent implementations and potential shifts on the horizon that could increase their likelihood of homeownership.
In June this year, the Queensland Government announced they would increase the first-home buyer stamp duty threshold from $500,000 to $700,000. This has opened up choices for new entrants in the market with a larger share of homes now qualifying for exemptions.
Without the burden of stamp duty costs, young adults will also be able to save for a deposit faster when purchasing properties priced below the new threshold.
Stamp duty concessions exist in most states and the increase in thresholds assist with entry into the market.
Interest rates also have a large influence on rates of homeownership. In the past year, they have only increased once and have remained fairly stable. With quarterly inflation numbers still above the RBA target band, markets are expecting no change in rates until early next year when cuts are anticipated.
These cuts will boost borrowing capacity for first-home buyers, and further enhance market confidence, which has already seen lending rates for first-home buyers rise 3.4% from last June.
While these factors are positive news for young adults, rising home prices remain a challenge. The shortfall in new homes and strong growth in our population are driving prices higher, likely leading to further declines in affordability and homeownership rates.
[1] Department of Parliamentary Services, Trends in home ownership in Australia, 2017.
[2] Australian Bureau of Statistics, Housing: Census, 2022.
* SA4 regions are areas defined by the Australian Bureau of Statistics as regions where people both live and work, and generally have populations between 100,000 and 500,000.
