HOW THE PANDEMIC IMPACTED FIRST HOME BUYERS

The dream of owning a home has become increasingly elusive for first home buyers, and experts point to Australian government intervention during the COVID-19 pandemic as a significant factor.

Words: LJ Charleston

A recent study on first home buyers (FHBs) highlights the potential consequences of economic measures implemented to stimulate recovery during the pandemic.

The research has been published in the journal Buildings – and it’s significant because it’s one of the few qualitative studies examining the impact of financial stimuli on FHB entry amidst the unprecedented circumstances of the pandemic.

The Study

To gather insights, researchers conducted a survey involving 61 FHBs in NSW. The respondents shared their experiences of navigating the housing market during a period marked by significant COVID-19 economic policies, including interest rate cuts, superannuation withdrawals, mortgage payment pauses and income supplementary programs.

The findings are alarming, with approximately 71 per cent of respondents indicating that their purchasing price range had escalated throughout the pandemic. Moreover, 83 per cent of FHBs expressed that the process had become more arduous and complicated, presenting substantial barriers to home ownership.

The study highlights a potential link between government intervention and the inflationary impact on property prices. While these economic responses aimed to stimulate recovery and alleviate financial strain, the consequence is a more arduous road for aspiring homeowners.

As FHBs continue to grapple with the obstacles in home ownership, it’s crucial for stakeholders such as the government and industry players to collaborate and implement targeted measures that support this vital segment of the housing market.

According to Associate Professor Chyi Lin Lee, discipline director of construction management and property at UNSW and co-author of the study, the economic policies that were aimed at promoting home ownership – such as the first home loan deposit schemes – might have harmed people by heating the market.

“The pandemic saw extraordinary economic responses from the government to stabilise the economy and businesses, but they arguably had unintended consequences for FHBs that put them in a more disadvantageous position than before the pandemic.”

Locked Out Of The Market

Home ownership in Australia has been on the decline for decades. Chyi says one of the main barriers to entry for FHBs is a widening deposit gap, which increased significantly with rising house prices during the pandemic.

“Capital city property prices increased by nearly 20 per cent, raising the time and money needed to make a down payment. As income-to-house-price ratio continued to expand during the pandemic, FHBs reported taking longer to save up a deposit,” Chyi says.

“Meanwhile, investors, particularly those already in the market who benefited from soaring house prices, can refinance for another purchase and are seen to outbid FHBs easily.”

The survey participants highlighted market inequality as the primary hurdle, with 48 per cent identifying investors and the advantages enjoyed by existing homeowners due to favourable tax policies regarding holding or selling property.

During the pandemic's peak in mid-2021, there was a notable increase in investor activity in the market, accompanied by a decline in the number of FHBs.

“Not only do policies of discount capital gains tax and negative gearing encourage investor activity and further pressure house prices, but monetary policy, such as record low-interest rates during the pandemic, may be considered further stimulus to encourage investing,” Chyi says.

Still Just A Dream

FHBs acknowledged an escalating dependence on financial assistance from their parents, assuming higher levels of economic vulnerability and opting to move to regional areas to enter the housing market.

Only 27 per cent of survey participants contemplated paying a 20 per cent deposit, whereas 21 per cent received a monetary gift to aid their deposit, and approximately 12 per cent obtained a guarantee. Additionally, a significant 77 per cent stated that acquiring any property held greater significance than finding their dream home.

“Even before the pandemic, many FHBs were finding it difficult to get into the market, with many predicting the situation will likely get worse,” Chyisays.

“This is driving a fear of missing out, resulting in many taking on higher levels of debt, rushing into purchases without completing thorough due diligence, relocating for affordability reasons or reducing their expectations for their first property.

“Policymakers should consider expanding support for FHBs beyond demand-side subsidies and invest more resources into supply-side interventions, primarily introducing more housing into the market.”

Sydney has reached a point where gaining entry without substantial aid has become exceedingly difficult. It already holds the title of the least affordable city in Australia for housing and ranks second-least affordable globally, according to the latest Demographia International Housing Affordability survey. Meanwhile, Melbourne ranks fifth-worst due to high demand brought on by low interest rates and dangerous borrowing levels.

All Australian mainland state capitals are among the 20 most expensive for housing globally, with Adelaide 14th, Brisbane 17th and Perth 20th.