Homes not costly but deposits are

Our research suggests the deposit is the problem.

In 1991 the median dwelling in Brisbane was $120,000 and could be purchased for 4.72 times average annual earnings. In 2015 it was $475,000 and that ratio was 6.09, 29% more expensive in real terms.

That’s a solid real return, but interestingly, repayments on that dwelling in 1991 were $309 a week, or .63 time average weekly earnings, and today, 25 years later, repayments on the median dwelling would be $614 a week, or .41 times AWE. That’s an increase in affordability of 35%.

So why aren’t purchasers rushing into the market as they were in the 90s?

The answer seems to be the time it takes to save a deposit.

At 10% of AWE before tax, it takes 12.2 years to put aside a 20% deposit today versus 8.9 25 years ago. That’s a significant increase, and many purchasers just don’t have that much patience.

What can, or should, governments do?

Historically state governments have provided first home owners grants which are a taxpayer-funded gift to first home purchasers to bridge the deposit gap.

These grants do work, although they also have an inflationary effect on house prices as well, so reducing the benefit.

It is also difficult to justify gifting $20,000 of taxpayer’s money for a private benefit.

A much more sensible approach, and one for the Commonwealth, would be to regard the house as part of retirement planning.

If you don’t own a house by retirement, the financially smartest thing is to take your super and buy one.