Home ownership already seemed like a far-off dream for many young Australians. But since the coronavirus pandemic sent the economy into a tailspin, that dream has been pushed even further back.
Mozo research found that 52% of millennials have seen their wages reduced by 20% or more as a result of the crisis. For those hoping to buy a home in Sydney, that means they’ll have to save an extra 14 months for a deposit, or 7.4 years in total.
First home buyers in Melbourne have also had their savings journey extended. There, a 20% reduction in earnings translates to an extra 12 months of saving, bringing the total amount of time needed to six years.
“Covid-19 has disrupted incomes across multiple industries throughout the country, and in doing so it has also slowed down the great Australian dream of home ownership,” said Mozo Director Kirsty Lamont.
“With so many millennials having their income reduced, putting 20% of your income into savings will no longer be an option for some first home buyers, who need to prioritise their immediate expenses.”
Across the nation’s capital cities, first home buyers in Perth and Darwin have emerged as the least disadvantaged, only needing to save for an extra six months if they have experienced wage reductions.
Entry level homes in the two cities are relatively cheap when compared to the average income, making home ownership a more attainable goal than in other capital cities.
Home ownership hopes dashed by rising unemployment
In the seven weeks from mid-March to early May, unemployment climbed from 5.2% to 7.3%. Younger people, who tend to be over-represented in industries which have been most impacted, have been particularly hard-hit.
According to the Australian Bureau of Statistics, unemployment has increased by 14.6% for those under 20 and 10.7% for those aged 20 to 29. By comparison, only 6.2% of 30 to 39 year olds and 5.3% of 40 to 49 year olds have lost their jobs.
But even when the virus is finally contained and the economy completely emerges from hibernation, it won’t be so easy for young people to claw their way back into the workforce.
Economic crises tend to produce scarring in labour markets, and stretches of unemployment experienced by young people usually last much longer than those experienced by other age groups.
There’s also the possibility that older workers will delay retirement to recoup losses in superannuation. If this happens, we’ll see a crowding out of the labour market that could make things even tougher for young job seekers.
Against this backdrop, saving up a 20% deposit for a home can seem extremely difficult, especially when the majority of savings accounts are producing almost negligible returns.
But while a home loan might seem out of reach for many young Australians, those who have been insulated against the current crisis have a few reasons to be optimistic, including less competition from investors.
“If they’re still working and able to get a home loan, then they do have a bit of an advantage because investors are currently having a tougher time than they are,” said Mozo’s property expert Steve Jovcevski.
“First home buyers usually compete with investors on the lower end of the market, but many investors are being pushed out because lenders are only taking into account 60% of rental income when handing out loans.
“The Government is also looking to speed up some big developments, so there’s a possibility that there will be more supply coming into the market which will be within first home buyers’ price range.”
If you’re confident your job isn’t at risk of disappearing and are hoping to take your first steps up the property market, make our home loan comparison page your first stop.