Home ownership has been out of reach for many younger Australians for years now, but new research paints a disturbing picture of how coronavirus may exacerbate this problem.
- More than half of households aged under 60 could be renting in 20 years
- Researchers fear poverty later in life for those who rent
- House prices falling during the coronavirus pandemic might not help
Roughly half of all households aged under 60 will reside in the private rental sector by 2040, explained report author Professor Terry Burke.
The report Australian home ownership: past reflections, future directions undertaken by researchers from Swinburne University of Technology, examined the growth of home ownership and its dominance in Australia after World War II.
It found that, while Australia’s overall home ownership rate appears to have held up well (68 per cent in 1976 and 67 per cent in 2016), the rate is projected to decline to around 63 per cent for all households by 2040.
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Much of the pain though will be felt in the 25-55 age bracket, where just 49 per cent of households will either own outright or be paying off their home by 2040.
That means 51 per cent would still be renting.
COVID-19 housing downturn won’t help
ANZ bank expects an average decline of 10 per cent for house prices across Australian capital cities.(Supplied: ANZ)
The latest forecasts from the NAB and the ANZ Bank point to a property market correction where dwelling prices fall 10 per cent or more in the wake of the coronavirus economic crisis.
“Prices, we expect to fall about 10 per cent over the next year or so,” ANZ senior economist Felicity Emmett said.
Logic would suggest this may provide another window of opportunity for first homebuyers to enter the market.
Unfortunately, the Swinburne University report suggests the opposite may be true.
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An important finding in the present COVID-19 context, Professor Burke noted, was that crises such as the Global Financial Crisis (GFC) that produced major falls in dwelling prices in many countries (less so Australia) did not create a return to home ownership.
The research points to weakened household income, and purchasers being outbid by investors for available finance, as reasons for a reduction in housing affordability despite large falls in house prices.
Ms Emmett agreed with that analysis.
“What we are going to see is a very sharp drop in household income in the second quarter and that’s going to really impact people’s ability and willingness to commit to buying or building a new home.”
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The Grattan Institute’s Household Finances program director, Brendan Coates, has done extensive research on housing affordability.
He also accepts it is going to be much harder for younger Australians to get onto the property ladder.
“Lower house prices because of a recession will mean some people will certainly find their way into the property market whose incomes are not affected, but for many others, while house prices are lower, their incomes are also lower as well,” Mr Coates explained.
“And that’s particularly the case when the COVID-19 recession is largely hitting younger, and lower-income Australians who work in the kinds of professions that have been hit by the shutdowns.”
Lack of ownership leads to poverty in retirement
Professor Burke says it opens up questions about what type of housing society we want.(ABC News: Liz Pickering)
Aside from not being able to call a place your own, the big fear among researchers is the potential for vast numbers of Australians to experience poverty or financial hardship later in life while renting.
Research from the Grattan Institute shows 40 per cent of those renting in retirement experience poverty.
“We know that those who don’t own their own homes are at much greater risk of financial hardship or poverty in retirement,” Brendan Coates said.
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The reason for this is that if you don’t own your own home, and you are still paying rent, without much income coming in, your budget will be squeezed.
Professor Burke is imploring Australians currently between the ages of 25 and 55 to focus on building their superannuation nest egg.
“Try to maximise your superannuation because you’re going to be in trouble if you’re a private renter in retirement.”
He is also calling on the government to increase Newstart (if it resumes that title) and to lift rental assistance.
He told the ABC without further government support, a generation would endure poverty in their final years of life.
“As more and more people retire or leave the workforce in older age without adequate income support, there’s going to be enormous poverty,” Professor Burke told PM.
“It casts questions into what sort of a housing society we want.”
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