There’s no question that Australia is one of the most expensive places on earth to buy residential property, and over the last 30 years, the number of younger Australians (those aged 25-34) achieving home ownership has fallen.
That doesn’t necessarily mean the dream of home ownership is out of reach, though.
New research from the Domain real estate group and Unloan - the Commonwealth Bank’s no-frills digital lending arm - looks specifically at the locations and the types of properties that provide the best opportunities for a couple in this cohort on average wages to climb the property ladder.
The findings
It’s no surprise that the top of the list is where in Australia you live.
“First-home buyers across our capital cities face vastly different journeys when saving for a 20% deposit on an entry-priced home, from 2 years and 3 months for an entry unit in Darwin to 6 years and 8 months for an entry house in Sydney,” the report says.
Australia’s most expensive city also tops the list when it comes to saving for the deposit on an entry-level unit - at 4 years and 6 months.
Canberra has the second-longest time to save for an entry-price house deposit, followed by Melbourne, then Brisbane
“The west-side story keeps getting better,” say the report’s authors - Dr Nicola Powell - Domain’s Chief of Research and Economics and Dan Oertli - the CEO of Unloan.
“Perth offers a lower entry purchasing price mixed with a relatively higher average wage, creating the ideal outcome of the second shortest saving time for houses and units.”
Domain and Unloan chose the 20% deposit figure, as this is usually the minimum required by lending institutions without requiring borrowers to take out expensive lenders’ mortgage insurance (LMI).
This is less of a problem for investors who can often deduct the cost of LMI from rental property income.
Domain and Unloan’s calculations were also based on the couple making regular contributions to a high-interest savings account as they built their home deposit.
However, the report points out that there are two sides to higher interest rates - yes, they might enable you to save for a deposit faster, yet when you take out a property loan, it will mean costlier repayments.
A clear theme running through Domain and Unloan’s 2024 First-Home Buyer Report is that it’s still possible for younger buyers to get onto the property ladder - especially if they don’t have the backing of the so-called “Bank of Mum and Dad” - but they need to be realistic.
“The type of property a first-home buyer has set their sights on can significantly affect when they step onto the property ladder,” say Nicola Powell and Dan Oertli.
“It’s not a surprise that the time to save a deposit for an entry-priced unit is significantly shorter than for an entry-priced house, given the difference in purchasing price,” they say, pointing to data which shows that across the combined capitals, a first-home buyer could purchase an entry-priced unit 18 months sooner than a detached house.
“The speed to market access is even starker across our most expensive cities, Sydney and Canberra, with the savings time for units 2 years and 2 months shorter than that for a house.”
The difference isn’t so stark across the combined regional measure, with couples being in a position to be able to put down a deposit on a unit only 11 months earlier than a house, reflecting the narrower price differential between property types in regional Australia.
Location, location, location…
Compromises might also be needed when it comes to the location of property for first-home buyers, particularly if they are looking to purchase a house.
So while Domain and Unloan say the citywide figure for a young Sydney couple to save a deposit for an entry-level house is 6 years and 8 months, they would need only 5 years and 7 months to save for a house in Wyong on the Central Coast, which is still within the Greater Sydney urban area.
Likewise in Melbourne, saving for a deposit on an entry-level house in the Melton-Bacchus Marsh area in the city’s outer west would take only 4 years and 6 months, compared to the citywide average of 5 years and 5 months.
But it’s not always a case of having to look far afield from city centres.
For example in Perth, the area with the shortest time for a couple to save a 20% house deposit includes suburbs surrounding the CBD.
It would take only 3 years and 3 months in the Australian Bureau of Statistics “Perth City” area, which takes in suburbs such as Subiaco, Highgate, Inglewood and Shenton Park.
Looking forward…
The 2024 First-Home Buyer Report says that while the upcoming revised stage 3 tax cuts are expected to reduce the time needed to save a deposit by an additional month for entry-priced houses and units, in most cities “this alone isn’t sufficient to significantly impact the market”.
In contrast, it notes the federal government’s proposed Help to Buy scheme is a much more substantial initiative, “dramatically reducing the time required to save for a deposit.”
Under that limited place scheme, it’s possible for people to buy a home with as little as a 2% deposit, with the government taking a shared equity stake.
Schemes like this “highlight how effective policies can support our first-home buyers”, Domain and Unloan say.