The 'single biggest factor' driving the rise in first homebuyer activity for Australians

The number of new loans being issued to the most budget-conscious cohort of buyers in the property market – first-time purchasers – has increased by 20 percent over the past 12 months, according to new data from the Australian Bureau of Statistics (ABS). Almost 10,400 new loans were written for first home buyers in November, 31 percent of them in Victoria, 23 percent in New South Wales and 19 percent in Queensland.

Despite the common affordability challenges faced by younger Australians, lending to first homebuyers is currently tracking at 29.4 percent of all new owner-occupier finance, which is above the 10-year average of 24.3percent. The value of all owner-occupier loans rose by 0.5 percent in November to $17.86 billion, up 10.6 percent over the past 12 months. The value of investor loans rose by 1.9 percent to $9.72 billion, which is 18 percent higher than a year ago. But the boost to first homebuyer finance is much bigger, up 2.8 percent in November to $5.25 billion, but more significantly, it’s up 25.8 percent compared to a year ago.

The ABS points out that a large component of November’s increase in first home buyer finance was due to a surge in Queensland. This coincides with a doubling of the state’s First Home Owner Grant to $30,000 for eligible first home buyers purchasing or building a new home. The grant is the equal highest state grant available to young buyers and triple the size of grants available in New South Wales and Victoria.

There are two key factors underpinning rising first home buyer activity, despite today’s high interest rates. The first and most significant is the growing impact of the Bank of Mum and Dad, with parents typically getting involved at the start of the process. They are either gifting cash to help fund the deposit, offering rent-free accommodation to their children throughout their 20s so they can save a deposit themselves, or going guarantor on their loans.

Research published last year by the Australian Housing and Urban Research Institute (AHURI) found parental help has “become one of the key enablers of the transition into home ownership”. According to AHURI’s findings: “Parental transfers, both direct and in-kind, are increasingly assisting individuals make a more rapid transition into home ownership. Analysis identified that in-kind transfers in the form of co-residence with parents (and not renting) lifts the likelihood of transitioning into home ownership by 40 percent.”

AHURI says first homebuyers’ ability to save a deposit using their earnings alone had diminished over time as property values – and thus the required deposit amounts – have risen. According to PEXA data, buyers in NSW needed a median deposit of just below $120,000 to buy a home in FY23, up 3.9 percent on FY22. In Victoria, the median deposit was $84,723, down 0.5 percent, and in Queensland it was $78,143, up 8.5 percent.

AHURI said family support “was found to be the single biggest factor in supporting being able to buy a home”. In Australia’s most expensive market, Sydney, where the median house price is currently $1.4 million and the median apartment value is above $830,000, according to the latest CoreLogic figures, AHURI says family support “was an essential component of being able to buy a home in all cases …”.

The second factor boosting first home buying today is higher uptake of the Federal Government’s expanded Home Guarantee Scheme, which enables eligible buyers to qualify for a loan with just a 5 percent deposit and a government guarantee on the rest, saving them thousands of dollars in mortgage insurance.

Housing Australia says one in three of all first home buyers in FY23 used the scheme, up from one in seven in FY22. This reflects the expansion of the scheme, with more places funded by the Albanese Government and broader eligibility criteria enabling more people to participate.

Higher interest rates have also encouraged more participation, says Housing Australia’s head of research, data and analytics, Hugh Hartigan.

“The broader macroeconomic environment with rapidly rising interest rates has substantially decreased mortgage serviceability with flow-on effects for affordability and this has led to first home buyers relying more heavily (proportionally) on the scheme than in previous years,” Mr Hartigan said.

Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.

Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.

Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.

“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.

“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”

Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.

Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.

“In the absence of stock, demand exceeds supply,” he said.

Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.

He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.

“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.

“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”

Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.

He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.

McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.

While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.

“People are looking for value for money,” she said.

She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.

“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.

The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.

“The viability of a development happens at the moment the site is bought,” he said.

He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.

While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.

“It is actually a business that requires a level of expertise,” he said.

Looking ahead, the panel agreed opportunities remained in the market despite current challenges.

Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.

McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.

Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.

“We can provide affordable housing in this country,” he said.

“But we’ve got to wrap that affordable housing with the things that people want.”

As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.

The ‘single biggest factor’ driving the rise in first homebuyer activity for Australians

The number of loans issued to first home buyers has risen by 20 percent over the past 12 months

Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.