Is it harder now to buy your first home than in the 1980’s?

There’s no end to well-meaning reminders from older generations that buying a first home was as tough, if not tougher, for them. But do first-home buyers in the 2010s actually have it harder than those in the 1980s?

Fenced in: High prices and high interest rates both have consequences in affordability for first-home buyers. Photo: Michele Mossop

There’s no doubt about it – housing costs more now than ever before, but incomes have also risen and a shift towards higher levels of education and women remaining in the workplace has changed the dynamic significantly.

While inflation plays a part in how much higher prices seem today – $1 in 1985 worth of goods was worth $2.75 in 2015, according to the RBA inflation calculator – the crucial factor is how incomes relate to house prices and how easy it would be for home buyers of that era to save and achieve a mortgage.In terms of capacity to save a deposit it has never been worse in NSW.Andrew Wilson, Domain Group

Easily accessible repayment data is only available from the early 1990s, when most 1980s first-home buyers would have been in their first decade of home ownership, Domain Group chief economist Andrew Wilson said.

In the 1980s the average weekly wage in NSW was $407.70, compared to $1556.30 in the 2010s. The median house price in 1985 was $73,000, while in 2016 it was $995,804.

While it was more difficult for home owners to make repayments for most of 2004 to 2011 compared to 2016, it’s still more difficult than the early 1990s.

“It’s an exclusionary market for first-home buyers, where we’re moving into a city of high-rise renters with very low numbers of home ownership,” Dr Wilson said. “In terms of capacity to save a deposit, it has never been worse in NSW.”

But while the deposits required to buy a home in 2016 are significant, first-home buyers are in a low interest rate environment that’s chalk and cheese with that seen in the 1980s.

Interest rates

So it could be the case that high price tags are the main reason it’s more difficult in 2016, as home buyers in the 1980s faced high interest rates threatening large repayments in first-home ownership.

Century 21 Australasia chairman Charles Tarbey, who bought his first home in Punchbowl in the 1970s, said interest rates tell an opposite story to prices.

Interest rates were “two to three times higher” in the 1980s than in the 2010s, where rates hit record lows in May 2016.

“Given the fact the interest rates are so low, it is incredibly easier [to buy a home] from that perspective because finance is far more available now and readily available,” he said.

A 1994 Australian Social Trends report from the Australian Bureau of Statistics notes housing affordability decreased substantially from 1988 to late 1989.

“Housing interest rates peaked at 17 per cent in mid-1989, considerably reducing access to home purchase,” it says.

“Reductions in interest rates since 1990 have been a major contributing factor to improving housing affordability.”

From 1982 to 1990, the proportion of home buyers’ income “spent on home purchase increased from 35 per cent to 50 per cent, a consequence of the higher interest rates in the late 1980s”.

In the early 1980s, the mortgage-broking industry was yet to make waves and home buyers were required to go through their real estate agent or bank manager to achieve a loan and negotiate a rate.

Social differences

Social differences also had a marked impact on how available property was to first-home buyers, which can be difficult to quantify in the affordability equation.

“[In 2016] partners work and bring in more money together. In the ’70s and ’80s, people had a family and were getting married in their 20s, not their 30s,” Mr Tarbey said.

Women more commonly stayed at home to look after the family, while in 2016 mothers often return to the workforce and increasingly, women do not have children.

It was also more difficult to find a property, with home buyers heading out with real estate agents in their cars to see four or five properties at a time, and no online portals to sift through.

In 1983, Bob Hawke introduced the First Home Buyer Boost Scheme to get first-home buyers into the market, Dr Wilson said.

“The thing that killed first-home buyers was a boom in the late-’80s; it was a house price boom that pushed first-home buyers out,” he said.

The rise of the investor

The investment culture has also increased over this time period, with far more competition in the entry-level suburbs, Starr Partners chief executive Doug Driscoll said.

“Although it’s much easier to borrow money today than ever before, increased competition from investors has contributed to the exponential rise in property prices.”

In 1985, capital gains tax was introduced and negative gearing benefits for investors were temporarily removed – before being reinstated in 1987.

In 1985, investors made up 13 per cent of housing finance nationally. During 2015, they increased to record highs of about 60 per cent of the market, before dropping back to about 50 per cent.

Rentvesting has increased as a result, with some renters deciding to buy investment properties rather than a family home.

Changing culture

Another way to quantify whether it’s harder for first-home buyers to access the market in 2016 is to compare how many are actually making the plunge.

A 2014 parliamentary briefing paper about affordability in NSW noted first-home-buyer demand reached a new record at 34 per cent of all owner-occupier sales by mid-2009 on the back of a First Home Owners Boost.

But since then, with the exception of brief upturns in 2011 and 2012, demand has been declining. This overall decline has existed since the mid-1980s, the report notes.

But demand doesn’t solely relate to affordability.

The appetite of first-home buyers has changed drastically in the past 30 years, Mr Driscoll said.

“There’s the assumption that millennials have an appetite to achieve the great Australian dream of owning a home, but it has certainly diminished since the ’80s,” Mr Driscoll said.

“Property was once considered someone’s retirement but that was before compulsory superannuation was introduced in 1992 – things have changed a lot since then.”

Back in the 1980s, Mr Driscoll said, home buyers were not able to purchase with a 5 per cent deposit.

Today, Lenders Mortgage Insurance is commonplace for those wanting to borrow more than 80 per cent. And in 2004, family pledges or guarantors became mainstream for the first time – led by St George.

So while statistically it appears harder for first home buyers to save a deposit and enter the housing market in 2016 than ever before, it’s not definitive. In the 1980s a first home buyer was more likely to be married, a single income household, with less access to the range of mortgage products on the market in 2016.

A look back at the significant national grants

1964 – Home Savings Grant
$500 to “married and engaged couples” under the age of 36

1973 – Home Deposit Assistance Grants
Income tax deduction for first-home buyers

1983 – First Home Owners Assistance Scheme
$7000 maximum grant (abolished in 1990)

2000 – First Home Owners Grant
$7000 grant

2008 – First Home Owners Boost Scheme
An additional $7000 (total $14000)

2010s – State and territory specific
States redirect grants towards new homes, in some instances offering more than $20,000