Spending on mashed avocado brunches and other frivolous items is definitely not a lifestyle for young homeowner hopefuls and family support has become key for many young adults to achieve their homeownership dreams.
This was according to new research undertaken for AHURI by researchers from University of Sydney and Curtin University, which examined how householders aged 25 to 34 in Sydney and Perth are adapting their spending, saving behaviours, and living arrangements to purchase a home.
The research, titled Pathways to home ownership in an age of uncertainty, surveyed people who were in the age bracket that was traditionally expected to have bought their first home. The survey provided 20 households with financial diaries to explore the complexities of spending and saving habits.
“The diaries confirmed that young adults are actively using strategies to support saving, such as minimising discretionary spending and paying ahead on utility bills,” said Laurence Troy (pictured above) of the University of Sydney, lead author of the research. “They’re not spending much on eating out, going out or going on holidays, with the most common saving strategies being cooking at home – including relying on meals of two-minute noodles – and spending less on clothing and household items.
“Instead, the young adults are focussed on paying reoccurring items such as food, petrol, and debts, with the biggest challenges being the large irregular, and often unexpected, expenditures such as car repairs and professional insurances.”
What is key to young Aussies buying their first home?
The study found that 40% of the respondents expected some form of financial support from their family towards buying their new home.
“The financial diaries also showed that for the young people living in Sydney, family support was essential for those who had bought a home,” Troy said. “For the people living in Perth, it was still possible to buy a home without direct family help, although a number did benefit from both financial and non-financial support from family.”
What hinders young Aussies’ ability to save?
The research found the major problem facing young homeowner hopefuls is that their incomes are erratic or are just not high enough to save for a deposit on a property.
More than 70% of the respondents have held multiple jobs in the last five years, revealing the instability of work that young people experience. More than 40%, meanwhile, are currently looking for more hours of work. As a consequence, more than 74% of renters across both cities had less than $5,000 in savings.
How young Aussies struggle to meet required deposits
With a 20% deposit on the median dwelling price being $220,000 in Sydney and $106,000 in Perth, more than 90% of young adult renters polled admitted to not having sufficient money tucked away for a deposit on a home loan.
“One of the most important saving strategies to emerge was living with parents or in properties owned by parents,” Troy said. “This meant a combination of little or no rent, utilities and food, and reduced spending in all major necessity categories. As a result, people can plan better and a larger share of income could be diverted to savings, and this also enabled lower income earners to consistently save.
“However, if only those with families who are able to provide support can do so, then those who don’t have supportive family are potentially locked out of homeownership altogether. And by extension, locked out of the important wealth building dimension that housing provides, particularly into retirement.”
Ultimately, the research highlighted that the major barrier many young adults face is the ability to save up for the deposit they need to get into the property market.
“In the past, we had certain rules and assumptions, for example, the gold standard was the size of a mortgage should be no more than four times your annual income, but these are now irrelevant,” Troy said. “Instead, we observe all-options-on-the table attempts to scramble together enough cash to buy into the market. The idea that there is a particular financial strategy that is suitable for the average household aspiring to homeownership is increasingly problematic. Generally, the strategy is to save as much as possible, reduce spending, and call in favours from family.”
Interestingly, the diary participants did not see government support as essential in their journey towards buying a home. This suggested that current government supports such as stamp duty exemptions and grants have been relatively unsuccessful in allowing more households to become home buyers. Instead, these had helped those already in the position to buy to push forward with their home purchases. Such policy measures did not address the structural issues affecting availability and affordability within the housing market and were focused instead on helping individual households compete in the housing market.
Click here to access the report.
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