That was then countered by those saying the updated proposal seems OK but imperfect. Then the government re-entered the chat to try to convince us that as per the initial announcement, it’s the greatest housing policy to hit Australia in decades.
The truth, of course, lies somewhere in the middle. Yes, it could nominally drive up house prices in specific areas or for particular types of housing. But in cities like Melbourne, where a building boom is well and truly under way, that’s also being offset by more housing stock being brought to the market.
No, it won’t mean we suddenly see every 21-year-old entering the property market as they graduate from university because it’s suddenly accessible for all. But it could mean that we see a drop in the average age of first home buyers and a decrease in the number of people renting long-term, which is a great thing.
And it’s here in this middle space of one side (pro 5 per cent) versus the other (20 per cent or bust) that the catch-22 of today’s housing crisis is perfectly on display.
To demonstrate just how small the difference is between renting and owning right now, let me break it down for you in real terms. In Melbourne, the median rent for an apartment is $575. If you were to borrow $458,880 (the median Melbourne apartment price minus 20 per cent deposit) at a rate of 5.68 per cent for 30 years, the weekly mortgage repayments would be $615.
Labor says its Help to Buy scheme will aid 40,000 people to buy homes.Credit: Fairfax Media
Assuming you’re taking out that amount as a couple, that means the difference between being an owner of your own home instead of a tenant requires you to find an extra $20 a week. Think about that for a minute.
In Sydney, the median rent for an apartment is $740 a week. If you were to borrow $667,833 (the median apartment price minus 20 per cent deposit) at 5.68 per cent for 30 years, the weekly repayments would be $894. While $154 is a substantially bigger jump in spare change for Sydneysiders than it is for Melburnians, when split between two people, it’s $77 a week. Again, if it’s the promise of home ownership before retirement age or a lifetime of renting, most people would be able to find that amount somewhere in their budget.
If you accept that mortgage holders have been struggling to make ends meet recently thanks to stagnant wage growth, the cost-of-living crisis and successive interest rate rises (chances are, you’re like me and are one of them), imagine being a renter.
They’re not only paying pretty close to the same amount as mortgage holders, but also have to find a decent chunk of spare cash to put away for a deposit. It’s no wonder the great Australian dream of owning a home is remaining a dream and not a reality for so many people.
What’s more, if you are in the average first-time buyer age range of 36, that means you’ve likely been renting for the better part of a decade. That’s a very long proven history of being able to make weekly payments, of being financially responsible, of money that could be coming off your own mortgage but has instead been going towards someone else’s.
Loading
There are a multitude of good reasons that our banks require a 20 per cent deposit, and a multitude of well-documented examples of where things can go wrong when deposit regulations are relaxed too far (looking at you, GFC).
But when you break it down, there are also a multitude of reasons to prove that by the time long-term renters are reaching the point where they’ve been able to cobble together a 5 per cent deposit, they should be let in the front door and allowed to make themselves comfortable.
Victoria Devine is an award-winning retired financial adviser, bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also founder and director of Zella Money.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.