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FEATURE ARTICLE: FIRST HOME BUYERS IN AUSTRALIA
While at any one time most people in Australia are living in owner occupied dwellings, many factors influence when and if people enter the housing market for the first time i.e. become first home buyers. For many, the decision to become a first home buyer (FHB) will reflect their life cycle stage (partnering, having children) and their capacity to finance the purchase of a dwelling and service that financial commitment. For some people, acquisition of other assets may take precedence over housing.
This article examines the characteristics of FHBs and how they have changed since the mid 1990s.
During the year to June 2011, there were 90,000 housing finance commitments to first home buyers, the second lowest annual rate since data collection began in July 1991 (see graph 2). The banks' standard variable interest rate for housing loans rose from 5.8% in June 2009 to 7.8% in June 2011 (see graph 3) and the government boost to the First Home Owner Grant, introduced in October 2008 to provide additional incentives for people to enter the housing market, ended in December 2009. The rise in interest rates and the end of the First Home Owner's Boost are likely to have caused the decline in FHB decisions during this period.
FHB WITHOUT A MORTGAGE
In the ABS Survey of Income and Housing (SIH), a FHB is defined as a household in which the reference person for that household (or their co-resident partner) bought the dwelling in which they reside in the three years prior to being interviewed, and neither that reference person nor their co-resident partner had owned a home previously.
In the 2009-10 SIH, 429,000 Australian households had purchased their first home in the 3 years prior to interview, an increase in the number since 2007-08 (318,000). Between 2007-08 and 2009-10 the proportion of FHBs without a mortgage remained stable, with 6.9% of FHBs owning their home without a mortgage at the time of the interview (table 4).
FHB WITH A MORTGAGE
The remainder of this article focuses on FHBs with a mortgage. Most of the data referred to is included in tables 12 to 13 at the end of this article.
Most FHBs with a mortgage in 2009-10 were relatively young, with 68% having the reference person aged under 35 years. Only 8% of FHBs with a mortgage had the reference person aged 45 years or older. Between 1995-96 and 2009-10 the average age of the reference person remained between 31 and 33 years. The age distribution of the reference person in these households has changed little over this period.
Partnering often precedes home purchase, and often has the advantage of providing two incomes to meet the associated housing costs, particularly during the initial loan repayment period. Couple households made up the majority (67%) of FHBs with a mortgage in 2009-10, with just under half of these including children. A further 19% were lone person households. There has been little change in the family composition of FHBs with a mortgage since 1995-96.
In 2009-10, the majority (60%) of FHBs with a mortgage had at least two income earners, a proportion that has remained broadly unchanged since 1995-96. All but 2% of these households had someone in full or part-time employment at the time of the survey.
Nearly three quarters (73%) of reference people in FHB households with a mortgage had a non-school qualification in 2009-10, up from 58% in 1995-96. In 2009-10, 36% had a bachelor degree or higher, compared with 18% in 1995-96 and 40% in 2007-09.
In 2009-10, educational attainment was a little lower in the general population in the age group 18-44 years (a reasonable approximation to the FHB age group). In this population 68% had a non-school qualification, compared to 73% for FHBs with a mortgage.
On average, FHBs with a mortgage purchase less expensive homes than changeover buyers i.e. households that had previously owned another dwelling. In 2009-10 the mean value of the dwelling of FHBs with a mortgage (as estimated by the householder) was $401,000, compared to $553,000 for changeover buyers and $531,000 for all owner households (see graph 5).
Between 1995-96 and 2009-10 the mean value of dwellings, estimated by their owners at the time of interview, was consistently substantially lower for FHBs with a mortgage than for changeover buyers. After adjustment for inflation, the mean value of dwellings for FHBs with a mortgage increased by 116% over this period (from $186,000 to $401,000), and by 90% for changeover buyers (from $291,000 to $553,000).
Although separate houses have continued to be the most favoured form of housing in Australia, there has been a shift among FHBs with a mortgage towards medium and high density housing (which includes semi-detached houses, terrace houses, townhouses, flats, units and apartments). In 2009-10, 26% of FHBs with a mortgage occupied medium or high density housing, up from 15% in 1995-96. In 2009-10, 21% of all households in Australia occupied medium or high density housing, up from 20% in 1995-96 (table 1).
In 2009-10, FHBs with a mortgage lived in smaller dwellings, on average (3.1 bedrooms), than either changeover buyers (3.4 bedrooms) or all owner households (3.3 bedrooms). This, along with the differences in house prices, indicates that FHBs with a mortgage occupy different segments of the housing market compared to changeover buyers.
FHBs with a mortgage were more likely to purchase new homes in 2009-10 than they were in 2007-08. Over this period, the proportion of FHBs with a mortgage buying new homes, as opposed to established homes, rose from 9% to 18%. The shift towards new dwellings, rather than established dwellings, may reflect the availability of housing stock as well as the availability of the First Home Owner's Boost to provide additional incentives for FHBs to buy new dwellings.
Generally FHBs borrow less money, on average, than non-first home buyers (graph 6). In June 2011, the average amount borrowed by FHBs with a mortgage was $275,000 (in 2009-10 dollars), while the average amount borrowed by non-first home buyers with a mortgage was $305,000 (in 2009-10 dollars).
In real terms, the average size of loans taken out by FHBs with a mortgage rose by $154,000 (or 127%) since June 1993, mainly reflecting the rise in dwelling values over this period.
HOUSEHOLD ECONOMIC RESOURCES
The capacity of a household to purchase a home and to service the ongoing costs of a home loan, together with other household costs, is largely determined by its access to economic resources, notably the incomes and wealth of its members.
FHBs with a mortgage tend to have higher than average household incomes. In 2009-10, they had an average weekly gross income of $2,006, 19% higher than the average for all households. Just under two thirds (61%) of people in FHB households with a mortgage were in the top two quintiles (40%) of equivalised disposable household income in 2009-10 (graph 7). Only 22% were in the bottom two quintiles (40%).
Over the period from 1995-96, the distribution of equivalised disposable household income of FHBs with a mortgage remained broadly unchanged. The proportion of people from FHB households with a mortgage who were in the bottom three equivalised disposable income quintiles has remained unchanged between 1995-96 and 2009-10 at 39%.
Between 2003-04 and 2009-10 the average real disposable income of people living in FHB households with a mortgage increased by 24%, slightly less than the average increase for people living in all households (up 28% over the same period), but greater than the 18% for those living in what are described as 'low income households' i.e. those in the second and third equivalised disposable income deciles.
For many FHBs with a mortgage, the equity accumulated in their home represents the major part of their household wealth. Equity is measured as the value of the dwelling less the reported value of any outstanding loans secured against the dwelling. In 2009-10, FHBs with a mortgage had a mean dwelling equity of $120,000. Since 1995-96, the real mean dwelling equity of FHBs with a mortgage has increased by 78% (graph 8).
The average amount of principal owed (mortgage outstanding) on the homes of FHBs with a mortgage was $282,000 in 2009-10, an increase of 138% in real terms since 1995-96. The faster rate of increase in the principal outstanding on FHB homes owned with a mortgage reflects the increases in house prices and therefore the mortgages taken out to acquire them, although some of the increased loan amounts may reflect borrowing for other, subsidiary purposes, as well as dwelling acquisition.
In this article housing costs for owners with a mortgage refer to rate payments and mortgage or unsecured loan payments, if the initial purpose of the loan was primarily to buy, add to or alter the dwelling. Additional housing costs incurred by owners such as repairs, maintenance and dwelling insurance was collected in the 2009-10 SIH.
In 2009-10 average weekly housing costs of FHBs with a mortgage were $491, or 24% of gross household income. Between 2007-08 and 2009-10, average housing costs dropped by $47 per week (or 9% from $538 to $491) for FHBs (graph 9).
The interest component of mortgage repayments for FHBs with a mortgage was the largest part of their weekly housing costs. In 2009-10, interest on the loan accounted for almost three quarters (73%) of the housing costs of FHBs with a mortgage, compared to 74% in 2007-08, 70% in 2005-06, and 64% in 2003-04. For changeover buyers with a mortgage, the interest on the loan in 2009-10 accounted for 74% of the housing costs.
Disposable income less housing costs
The income available to FHBs with a mortgage to support other household consumption, after deducting housing costs from their disposable income, provides a further indication of their economic circumstances.
In 2009-10 the average disposable household income, less housing costs, was $1,142 per week for FHBs with a mortgage. In real terms, this has risen 62% from $706 per week in 1995-96 (graph 10).
10. Mean weekly disposable income, housing costs and disposable income less housing costs (a), FHBs with a mortgage
The principal component of mortgage repayments can be considered to be a form of saving rather than a recurrent housing cost. In 2009-10 the average principal component was $132 per week for FHBs with a mortgage. Excluding this from the measure of housing costs would result in an average disposable income net of housing costs of $1,274 per week in 2009-10.
Lower income households
Households with low or moderate incomes and limited reserves of wealth may have difficulty obtaining finance or meeting the ongoing costs of owning a home with a mortgage, particularly in periods when house prices are rising quickly.
In this publication 'lower income households' have been defined as those containing the 30% of people with equivalised disposable household income between the 10th and 40th percentiles. While the majority of FHBs with a mortgage have higher than average incomes, 18% of FHBs with a mortgage were from lower income households.
In 2009-10 the average age of the reference person in lower income FHB households with a mortgage was 34 years, compared to 32 years for other FHB households with a mortgage (see table 13 at the end of this article). They were less likely to be under 35 years of age than other FHB households (60% compared with 70%) and more likely to have dependent children (67% compared with 29%).
Lower income FHBs with a mortgage reported lower average dwelling values than other FHBs with a mortgage ($382,000 compared with $406,000) and lower weekly housing costs ($394 compared with $512).
Despite lower housing costs, lower income FHBs with a mortgage, on average, spend a greater proportion of their income on housing costs than other FHBs with a mortgage (38% compared to 23%). More than two-thirds (69%) of lower income FHBs with a mortgage spend more than 30% of their gross income on housing costs (see graph 11).
To varying extents, householder preferences may influence how much FHBs with a mortgage spend on housing costs. Some households may choose to live in an area with high housing costs because it is close to their place of employment. Others may choose to make higher mortgage repayments now, in order to pay off a mortgage faster, as a form of investment. However these options may be less available to lower income households.
PREVIOUS LIVING ARRANGEMENTS
Previous tenure and landlord type
From the 2007-08 SIH results, the path into home ownership for the majority (63%) of FHBs with a mortgage was from a dwelling rented from a private landlord. However, almost one in five (18%) FHBs with a mortgage lived with their parents (or other relatives) prior to purchasing their own home (graph 12).
12. Reference person's tenure and landlord type of previous dwelling, FHBs with a mortgage - 2007-08
Location of previous dwelling
In selecting their new home, the majority (51%) of FHBs in 2007-08 were most likely to choose a dwelling in the same suburb, town or locality as their previous dwelling. Only 2% of FHBs with a mortgage in 2007-08 reported that their previous dwelling was in a different state or territory.
SATISFACTION WITH CURRENT DWELLING
In 2007-08, FHBs with a mortgage reported high levels of satisfaction with their current dwelling, with 89% reporting being either satisfied or very satisfied. This high level of satisfaction is only slightly lower than the levels reported by changeover buyers (92%) and all owner households (91%). Despite the generally high levels of satisfaction, over one in ten (11%) FHBs with a mortgage reported that they were likely to move home within the twelve months after being interviewed.
Microdata records in the Confidentialised Unit Record Files (CURFs) released by ABS from the SIH are available for analysis and include fields for first home buyers and changeover buyers.
A full range of up-to-date information about the availability of ABS CURFs and about applying for access to CURFs is available via the ABS web site <http://www.abs.gov.au> (see Services, ABS Microdata). Inquiries to the ABS Microdata Access Strategies Section can be emailed to: firstname.lastname@example.org, or phone (02) 6252 7714.
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