The housing crisis in Australia caused by the lack of middle-income housing options

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Young Australians are spending an “extreme amount of time” saving for their first deposit and many are struggling to repay the mortgage of their first home.

Even when they do secure their first home, upsizing to a second more valuable property is becoming increasingly elusive.

Domain’s latest first home buyers report, released this week, shows couples aged 25-34 are spending an extra month saving for their first house deposit across the country when compared to 2019.

The national average price for an entry-level house five years ago was $390,000. That’s now ballooned 58 per cent to $617,500.

Average unit prices across the country have also increased from $380,000 in 2019 to $481,000 today, an increase of 27 per cent.

A chart showing changes in property prices

The group’s chief of research and economics, Dr Nicola Powell, told SBS News first home buyers are taking on greater levels of debt.

This makes it even harder to build equity for future properties.

Debt on the rise

“We have seen such an extreme change in that entry-level price point, which means that first home buyers do need to take on greater levels of debt in order to gain access to the housing market,” she said.

“I think it is important though to remember that those early parts of repaying a mortgage when you are a first-time buyer is really the hard yards.

“It is a period of time where you do have high levels of debt relative to the equity that you have in your home.”

A chart showing the changes in unit pricing

An entry-level house or unit is one priced within the 25th percentile of the market in Domain’s calculations.

These homes are the first step for many wanting to make a start on the property ladder, but many prospective buyers are having to spend years saving for a 20 per cent deposit on their first home.

Taking longer to save for a house; units more affordable

The average Australian couple aged between 25-34 earns around $120,000 per year as a combined total, according to Domain.

These couples will spend just under five years to save for a house, or around three-and-a-half years to save for a unit.

“It is a significant amount of time, and this is being based on a couple. So if you’re a single person trying to break into the housing market, it is an extreme amount of time needed to save,” Powell said.

A chart showing the amount of time it takes to save for a property.

Melbourne is the only capital city where the time to save for both an entry-priced house and unit deposit has decreased over the past five years. As a result, Victoria now leads the nation in first-home-owner participation.

A growing divide in the market

Powell said the growing gap between unit and house prices is making it harder for people to upsize from their first property, leading to a “missing middle” in the property ladder.

“What we have at the moment is a wide gap between house and unit prices,” she said.

“That means if you are a first home buyer and you’ve purchased a unit, when you are going to upsize and your ultimate dream might be to purchase a house, that leap is significant.”

Powell said we need to think about the “missing middle of affordability” by creating more mid-priced townhouses and terraces.

“We need to create more steps on the property ladder to allow people to make the journey within the property market to what is considered the Australian dream, which still is very much a detached family house.”

Mortgage stress also on the rise

More Australians are facing mortgage stress, which is defined as spending at least 30 per cent of their income on repayments.

In 2019, only entry-priced property buyers in Sydney and Melbourne were facing mortgage stress.

Today, first home buyers in all capital cities except Darwin face mortgage stress.

“When you have a look at mortgage stress, we’ve seen a vast change over the past five years, and particularly for entry houses,” Powell said.

“Ultimately, at the core of this is the extreme rate of price growth that we’ve seen in entry prices over the past five years. And that increase in price really has been led by Adelaide, Brisbane, and Perth,” Powell said.

A chart showing mortgage repayments across the country as a percentage of income.

What’s the solution?

Powell explained that building more homes is one way to reduce the strain on first home buyers, but that Australia also needs to shift towards higher-density housing.

She said the government’s national housing accord, a plan to build 1.2 million homes in five years, needs to keep affordability in mind.

“The housing accord is one way forward. And I think supply is really a focus of all levels of government and what we need to ensure is that the supply that we do provide is affordable housing supply in the right areas,” she said.

“And I think we also need to consider high density in some of our capital cities. We look at a city like Sydney, it’s one of the least dense cities in the world.”