Despite house prices doubling relative to annual gross household income between 1985 and 2009, the percentage of lower income households (i.e. those earning in the bottom 40 per cent of household incomes) buying their own home has stayed remarkably stable at 6 per cent of all households. This paradox, however, is explained when we look at the dramatic changes in who the current lower income buyers are, where they can buy and their increased levels of housing affordability stress.
Research reveals that households on lower incomes are having difficulty affording both children and buying a home. In 1981–82, 70 per cent of lower income buying households were a couple (21%) or a couple with dependent children (49%); by 2008 this had dropped to 46 per cent when only 13 per cent were couples and 33 per cent were couples with dependent children. In addition, the percentage of first-time lower income couples with dependent children who bought within the last three years has plummeted from 55 per cent in 1981–82 to 22 per cent in 2007–08.
The new, lower income buying households (who, in 2008, earned $76 000 or less) are more likely to be older (47% aged 45–64 in 2008 compared with 32% in 1982), a lone person (26%, 18% in 1982), a single parent (12%, 7% in 1982) or a couple with non-dependent children (9%, 4% in 1982).
While the increase in lower income buyers who are single parents reflects the general demographic increase in single parent families (from 12% in 1980 to 21% in 2008), this does not offset the large drop in buyers who are couples with children. Instead, these households with dependent children are staying in the rental market.
In 2009–10, 44 per cent of households who earned between 10 per cent and 40 per cent of average household income and were renting had dependent children. In comparison, only 30 per cent of all renting households had dependent children.
In spite of the changed profile, lower income buyers are having a difficult time in the market where rising house prices have created affordability problems. For example, in 2010 median house prices in metropolitan Melbourne were more than six times the annual income of a single lower income household.
Research reveals that, in 2007–08, in the first four years after purchasing a home, 61 per cent of lower income buying households paid more than 30 per cent of their income in mortgage costs; after five to eight years of ownership half (51%) paid more than 30 per cent, and even after 14 years 19 per cent of these buyers paid more than 30 per cent in mortgage repayments. In contrast, only 20 per cent of middle to higher income purchasers paid more than 30 per cent of their income during the first four years after buying, and this rate declined to 8 per cent after 14 years.
In addition, the percentage of first-time lower income buyers who bought within the previous three years (compared with all Australian households) has dropped by 80 per cent—from 1 per cent (48 990 buyers) in 1981–82 to 0.2 per cent (16 185 buyers) in 2007–08. This suggests that the seemingly stable 6 per cent of lower income households as buyers is really due to these households buying homes 15 to 20 years ago before house prices began to rise in 1997–98. The outcome is, in the longer term, the number of lower income buyers will fall.
In Australian cities, families with incomes less than $40 000 are priced out of the market and those with incomes between $40 000 and $80 000 can only buy in the outer suburbs. Singles and couples on incomes above $60 000 have much wider housing choice and can buy an inner urban one or two-bedroom apartment.
Although lower income buyers only make up 6 per cent of all Australian households, supporting them means they are less likely to be at risk of needing ongoing housing assistance in the private rental market or social housing. Policy options could be to develop different types of home ownership products, such as shared equity arrangements, community land trusts, or a HECS type system whereby mortgage repayments are lower in the initial years and recouped later when children are older.