Accessing Australia’s housing market is incredibly challenging for first-home buyers, but one state is emerging as somewhat of a haven for first-home buyers, with several factors helping to buoy first-home buyer activity.
Victoria has emerged as the the state with the highest number of first-home buyers in the country, and despite high interest rates and surging house prices, the number of first-home buyers nationally is higher than the 10-year average.
Rising incomes since the pandemic have been insufficient to offset increases in home prices and the surge in mortgage rates resulting in the worst housing affordability conditions on record.
Increasing house prices and reduced affordability highlight the challenges in accessing Australia’s housing market and are associated with delayed home ownership.
Census data shows that nationally, the rate of home ownership has been lower for almost each successive birth cohort since the 1947–51 birth cohort and importantly research shows that as these younger groups age, they are less likely to ‘catch-up’ and buy a home.
However, despite the current challenging purchasing environment, first-home buyer numbers nationally – though well-off record high pandemic numbers – remain above the average seen over the past decade.
The proportion of new lending to first-time homebuyers has also risen from levels seen in 2022 before interest rates began to climb.
Though Australian Bureau of Statistics (ABS) data shows more than a third of recent first-home buyers are aged over 35, more than half of first-home buyers are aged between 25 and 34.
As a share of 25-34-year-olds (still the most common age for first-home buyers), the count of new first-home buyer loans is just above the decade average nationally. The same is true in NSW, Victoria, South Australia and the ACT, with NSW and Vic seeing the biggest lift relative to the decade average.
So, what’s behind the resilience in first-home buyer activity?
Tight rental market conditions have likely played a part in incentivising those with the means to purchase sooner than otherwise. The persistent increase in home prices is also likely to have incentivised many to overcome purchase challenges with the expectation of a continued deterioration in accessibility.
Government support schemes, concessions and grants, and expanded eligibility criteria have also played a part in facilitating first-home buyers to get into the market.
The number of first-home buyers in Victoria is currently surpassing other states, and the state accounts for a 32% share of all new loans to first-home buyers.
The count of new loans to first-home buyers in Victoria is 14% above decade average levels, after increasing 13% in the year to July 2024 compared with the previous year, the largest increase of any state.
The number of new first-home buyers in the three months to July 2024 in Victoria has increased almost 20% compared with the previous quarter. This is the highest number since the three months to May 2022, the end of the pandemic boom and before the Reserve Bank went on to increase interest rates substantially.
Subdued conditions relative to other capitals and small falls in home prices over the past year have likely supported first-home buyer activity in Victoria, despite it being one of the least affordable states to own a home.
In Melbourne, which has seen the weakest growth of any capital city since the pandemic, first-home buyers have had more confidence to transact – with prices holding steady over the past year and not surging ahead as is the case in Brisbane, Adelaide and Perth.
Buyers in Melbourne and regional Victoria have also experienced a large uplift in choice given the accumulation of total stock on market.
But also, the take up of the First-home Guarantee Scheme (FHBG) was highest in Victoria and specifically Melbourne in the 2023–24 financial year. More than a quarter (28%) of first-home buyers who used the scheme in the 2023–24 financial year came from Victoria.
The FHBG is part of the Home Guarantee Scheme (HGS), an Australian Government initiative to support eligible home buyers to buy sooner.
The scheme allows a first-home buyer to purchase a property with a deposit of just 5%, with the government guaranteeing the remaining 15%, thus reducing how much deposit they must save.
Melbourne also has the highest share of properties eligible for purchase under the Home Guarantee Scheme out of all the capital cities except Darwin.
Since 2022, when the price caps were raised, the pool of eligible properties in Brisbane (-27 ppt), Adelaide (-39 ppt), and Perth (-39 ppt) has declined significantly after the strong home price growth in each of these cities over the past two years.
Meanwhile, prices in Melbourne have fallen 1% over the past two years and the median cost of a home in Melbourne is now below Brisbane and Canberra, and median unit values have slipped behind Adelaide. However, the threshold for purchase value under the scheme has remained the second highest in the country.
This will have given the eligible first-home buyers in Melbourne supported by the scheme much more choice in finding a suitable property, with more than half of homes in Melbourne eligible.
In contrast, take-up of the scheme in South Australia was subdued.
Adelaide also has the smallest share of properties eligible for purchase under the Home Guarantee Scheme out of all the capital cities, exacerbating the current challenging purchasing environment with South Australia recording the greatest decline in affordability over the past year.
The data underscores the need to revise current caps in line with market conditions.
For most first-home buyers, the deposit hurdle is most significant in accessing home ownership. In South Australia, saving a deposit is a big challenge. An average-income household would need to save 20% of their income for 6.3 years to save a 20% deposit on a median priced home – the longest time to save of any state except NSW.
Given the scheme reduces how much deposit first-home buyers must save, it will help some buy sooner than they otherwise could have, but the current price caps in Adelaide and Perth, and to a slightly lesser extent Brisbane, severely limit participants' choices in what homes are eligible under the scheme.
Anecdotally, it is often said that first-home buyers compete with investors for similar properties.
Investor activity has increased over the past year, with low vacancy rates, strong rental price growth and the prospect of capital gains – with persistent property-price increases in recent years incentivising investor activity.
In July 2024, investors accounted for a 38% share of the value of new lending, the highest share since April 2017, and a 38% share of the number of new loans.
Though, in Victoria, increased property taxes and changes to tenancy legislation have made owning an investment property less attractive, and the state hasn’t seen the same uplift in investor activity in the past year.
This could be another factor behind the relative strength of first-home buyer activity in Victoria.
The share of total loans to investors is also lower in Victoria than in other states (32%), while loans to first-home buyers took up the largest share of total loans, accounting for 24% of the total in July, the highest share of any state.
In contrast, in South Australia, loans to first-home buyers made up a 15% share of all loans written in July 2024, the lowest of all states.
But it’s Western Australia that’s seen the biggest shift, as investors have become more active despite remaining the most affordable state to service a mortgage and save a deposit.
The count of new loans to first-home buyers in WA is 7% below the decade average and the share of purchases by first-home buyers has dropped from 39% in January 2021 to just 18% in July. Investors are making up the difference here, with the share of new loans to investors up from 15% to 41% over the same period.
Other grants and concessions available to first-home buyers also support accessibility, and there is a lot of variation between what different states and territories offer in the way of grants and stamp duty concessions, which are likely to impact participation.
For first-home buyers, stamp duty significantly slows the path to purchase because it is an upfront additional cost on top of the deposit that buyers need to save.
It’s clear that just as a multitude of factors have rendered current purchasing conditions challenging, there are many factors behind the state-to-state variance in first-home buyer trends.
Conditions for first-home buyers remain difficult, but with interest rates expected to move lower next year first-home buyer participation is likely to increase, with the boost to borrowing capacities and affordability – particularly while policy support remains in play.
