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Housing and lifestyle: First home buyers
Attaining home ownership
Many interrelated factors can affect the relative costs and benefits of home ownership and the financial capacity of households to purchase a home. Ultimately, these factors can determine whether or not a household enters into home ownership. Such factors include interest rates, property values, the cost of renting, and the ability of a household to save a deposit and to meet ongoing repayments. The ability to purchase may also be affected by labour market changes and the level of household members’ attachment to the workforce. For example, people in casual or contract employment may be less able to make long-term financial commitments or obtain a loan than those in more stable (i.e. permanent, full-time) employment.2 In addition, a range of social trends, such as the delay in family formation and increased participation by young people in further education and training, may affect the timing of first home purchase. Further, home ownership may not align with changing lifestyle choices or situations.
FIRST HOME PURCHASES(a)
(a) The number of homes for which finance was provided to first home buyers in the financial year.
Source: Housing Finance for Owner Occupation, Australia (ABS cat. no. 5609.0).
Recent first home buyers
Most households which purchased their first home in the three years to 1999 were relatively young, with the reference person in three-quarters of these households aged 25 to 44 years. After the age of 44 years, the proportion of recent first home buyers was lower for each successive age group. This is largely because households containing people aged 45 years and over are more likely to have previously purchased a home (i.e. prior to 1997) and therefore are not classified as recent first home buyers. For example, although households with a reference person aged 65 years or over were the least likely to be recent first home buyers, overall they were the most likely to be home owners in 1999.
RECENT FIRST HOME BUYERS(a) - 1999
(b) Includes households with at least one dependent child.
Source: ABS 1999 Australian Housing Survey.
In 1999, the household reference person was aged 25-34 years in more than half (58%) of all recent first home buyer households. This may be attributed to several factors. Broad life-cycle differences between 15-24 year olds and 25-34 year olds mean the latter are more likely to enter into home ownership. For example, the generally higher incomes of 25-34 year olds and their greater likelihood of having stable employment than their younger counterparts may make home purchase more affordable and increase the likelihood of having a loan approved. They are also more likely to have formed long-term relationships. Partnering has traditionally preceded home purchase,3 and often has the advantage of providing two incomes with which to meet the associated costs.
Couples with children represented almost a third of households that bought their first home in the three years to 1999. A further quarter of recent first home buyers were couple-only households where the reference person was aged less than 35 years. However, 14% of recent first home buyers were people aged 15-34 years who lived alone. One-parent households made up less than 3% of recent first home buyers. This may be because they had owned or partly owned their home prior to separation or divorce. However, one-parent households also have below average incomes, and account for a relatively small proportion of households overall (6%).
INCOME DISTRIBUTION OF RECENT FIRST HOME BUYERS(a) - 1999
(a) Households that purchased their first home in the three years to 1999.
Source: ABS 1999 Australian Housing Survey.
First home buyers generally have above average incomes, with more than three-quarters (77%) of recent first home buyer households ranked in the third, fourth and fifth equivalised income quintiles in 1999. This may be partly because of the relatively high proportion of households where the reference person was aged 25 to 44 years in these quintiles, as households in this age group were the most likely to be purchasing their first home. For example, such households represented almost half (48%) of those in the upper three quintiles (compared with 30% in the lower two quintiles). Conversely, households where the reference person was aged 65 years or over accounted for 8% of all households in the upper three quintiles (compared with almost 40% in the lower two quintiles) and, as previously discussed, were unlikely to have recently purchased their first home.
What sort of home?
While Australian homes have traditionally been separate houses, higher density dwellings represent an increasing proportion of homes. Separate houses represented 76% of all homes in 2001, down from 78% a decade earlier (see Australian Social Trends 2003, Changes in Australian housing). However, separate houses remain the most common type of home purchased. While most (81%) recent first home buyers bought a separate house, this was slightly lower than for recent changeover buyers (83%).
The costs of home purchase
The average size of first home buyers’ loans rose from $84,500 to $144,900 in the nine years to 2001-2002, partly reflecting the rise in housing prices over time. Between 1993-1994 and 2001-2002, the price index for established houses (which takes changes in the quality of dwellings into account) rose by 63% (see Australian Social Trends 2003, Housing: national summary table). However, a range of other factors may also have influenced the size of first home buyers’ loans, such as the changing conditions under which home buyers have been able to acquire and use housing finance (see Australian Social Trends 2001, Housing finance).
AVERAGE SIZE OF LOANS TAKEN OUT BY FIRST HOME BUYERS(a)
(a) First home purchases for which finance was provided in the financial year.
Source: Housing Finance for Owner Occupation, Australia (ABS cat. no. 5609.0)
Of those households that bought their first home in the three years to 1999, 87% had a loan secured against their dwelling in 1999, compared with 61% of recent changeover buyers. However, on average, recent first home buyers owed less on their mortgage in 1999 than recent changeover buyers ($95,000 compared with $115,000). The median repayments of recent first home buyers were $180 (18% of their income) per week, with just over half (53%) making above the minimum repayments.
Households with a mortgage that bought their first home in the three years to 1999 spent a median $120,000 on their home, with the average deposit representing about 10% of the purchase price. Of those who paid a deposit, 78% had saved it. This indicates that being able to save is a key factor in first home purchase. Another 11% of recent first home buyers had received their deposit as a gift or loan from family or friends.
Recent first home buyers had a median $40,000 equity in their home, just under half that of recent changeover buyers ($86,000). This is consistent with the greater incomes and accumulated wealth of changeover buyers, compared with first home buyers. Over time, home ownership can in itself increase a household’s wealth (largely through enforced saving and rises in property values) and make upgrading a home more financially viable. Upgrading may involve moving, renovating or both (see Australian Social Trends 2002, Home renovation).
MEDIAN COSTS FOR RECENT HOME BUYERS(a) THAT HAD A MORTGAGE - 1999
(b) The amount by which the value of the dwelling exceeds the amount owed on the dwelling.
Source: ABS 1999 Australian Housing Survey.
The First Home Owner Grant
Programs encouraging and assisting home ownership, such as capital gains tax exemptions on the sale of main residence private homes, have long operated in Australia.1 A previous First Home Owners Scheme helped almost 360,000 recipients to buy their first home in the 1980s.4 In its first two years of operation, the First Home Owner Grant, introduced in July 2000, assisted a similar number of recipients. This grant was introduced alongside, and to compensate for the possible effects of, the GST. From July 2000 to June 2002, around 360,200 payments were made. Based on the 2001 Census population of 7.1 million households, 5% of all households received the grant during this period, totalling almost $3 billion in assistance.
FIRST HOME OWNER GRANT RECIPIENTS - JULY 2000-JUNE 2002
Source: New South Wales Office of State Revenue; Victorian State Revenue Office Monthly Treasury Report, June 2002; Queensland Government Office of State Revenue <www.osr.qld.gov.au/fhog/html/statistics.htm>, accessed 4 September 2002; Taxpayer Services, RevenueSA; Western Australia First Home Owner Grant On-line system; The Commissioner of State Revenue, Tasmania; Australian Capital Territory Department of Treasury Oracle Database; National First Home Owners Grant Database in reconciliation to the Northern Territory Government Accounting System Ledgers.
Around 311,000 of the grant recipients (86%) received the initial grant of up to $7,000. Although many of these would have purchased an established home, due to timing restrictions on the additional grant for those buying a new home, some may have bought new homes. The remaining 14% of recipients built or purchased a new home and received either $10,000 or $14,000. Of the grants given, the greatest proportion going to people buying or building a new home was in Western Australia (20%), compared with a low of 6% in Tasmania.
1 Australian Housing and Urban Research Institute (AHURI) 2000, Australia at Home; an overview of contemporary housing policy issues, AHURI, 2000.
2 Kupke, V. and Marano, W. 2002, The implications of changes in the labour market for the ownership aspirations, housing opportunities and characteristics of first home buyers, AHURI, 2002.
3 Baum, S. and Wulff, M. 2001, Housing aspirations of Australian households: Positioning paper, AHURI, 2001.
4 Australian Bureau of Statistics 1992, Year Book, Australia, 1991, cat. no. 1301.0, ABS, Canberra.
5 Gilfillan, G. 2001, Impact of the GST and the First Home Owners' Scheme on the Housing Industry <www.aph.gov.au/Library/pubs/rn/2001-02/02RN01.htm>, accessed 30 August 2002.
6 CanberraConnect <www.canberraconnect.com.au/general/
housing/buyingahome/firsthomebuyer.html>, accessed 30 August 2002.
7 fhog Online <www.firsthome.gov.au.html>, accessed 30 August 2002.