Is it harder to buy a house these days, or have young people been eating too many avocados?
Today’s younger generations are finding it harder to buy homes than previous generations did. So, are younger people being less responsible with their money, or is it genuinely more difficult to become a first-time buyer? What can be done to make things easier for those hoping to take their first steps onto the property ladder? At Curtin University in Australia, Professor Rachel Ong ViforJ is studying intergenerational housing inequality and using her findings to inform and advise policymakers with the hope of helping younger people buy their first homes.
Talk like a housing economist
Economics — the study of how people, organisations and governments use limited resources to meet their needs and desires
Government grant — financial assistance (that does not need to be paid back) provided by the government to help individuals or organisations engage in activities like buying a first home or starting a business
Intergenerational housing inequality — the difficulties faced by younger generations in the housing market compared to older generations
Inflation — the rise in overall prices of goods and services, reducing the value of money over time
Mortgage — a loan that is used to buy a property
Supply side measures — policies aiming to increase the number of homes available, such as easing planning rules or funding new construction
Tax concession — a benefit from the government that reduces the amount of tax an individual or organisation must pay
Buying your first home is one of life’s key milestones, but for many young people, this step seems entirely out of reach. In 2016, a social commentator in Australia suggested this was due to young people spending too much money on little luxuries such as smashed avocado on toast. This sentiment was echoed in the media, and it seemed like the ‘smashed avocado generation’ only had themselves to blame.
However, while aspiring homeowners should be responsible with their finances, there are many other factors in play. “House prices have been spiralling upward at faster rates than young people’s incomes, and the housing wealth gap between the young and old is widening,” says Professor Rachel Ong ViforJ from Curtin University. “Australia also offers generous tax concessions to property owners, which pushes up demand for buying property as an investment. Investors compete with young first-time buyers, and the latter often miss out because their financial positions are not likely to be as strong as property investors.”
What does the data tell us?
“Since the mid-1980s, the average house price to income ratio in Australia has risen by over 200%,” continues Rachel. “Back in the mid- 1990s, the average house price to income ratio in Australia was around 3:1. Now, it’s around 8:1 and even exceeds 10:1 in some parts of major cities.” Traditionally, house prices increase because of economic booms, strong population growth and low interest rates, which make mortgages more affordable. However, the COVID-19 pandemic caused disruptions to global supply chains, and housing supply has struggled to keep up with demand, creating competition and increased prices.
“There are many datasets that allow us to analyse patterns and trends in the Australian housing market,” says Rachel. “For example, we have national household surveys, such as the Household, Income and Labour Dynamics in Australia (HILDA) Survey, which are rich sources of information on homeowners as well as renters.” HILDA is an annual survey that tracks respondents from year to year, shedding light on how their housing opportunities change as they get older.
Smashing the avocado narrative
“Far from spending all their money on smashed avocados, young people in Australia are actually saving more than they used to,” says Rachel. “In 2006, around 66% of non-homeowning adults aged 25-44 saved regularly. By 2020, this had risen to around 80%. More young non-homeowners in Australia are also planning ahead financially. In 2006, 47% were planning more than a year ahead. By 2020, this share had risen to 55%.”
Even with these increased saving habits, young people are still struggling to buy their first homes. However, for some young people, these struggles can be alleviated by ‘the bank of mum and dad’. “Receiving parental cash assistance of more than AU$5,000 quadruples the chances of a young person becoming a homeowner,” explains Rachel. “Parents may also be able to help by providing free accommodation in the family home or a second property.” This can more than double the chances of a young person becoming a homeowner compared to a situation where the young person has to rent privately.
“As the bank of mum and dad becomes more important, this will widen the gap between young people with parents who are able and willing to help them buy a home and young people whose parents cannot or will not help,” says Rachel. “In general, young people’s chances of becoming homeowners are very low if they live in public housing or co-reside with parents who are renters.”
How can the government help?
Government policies can have a significant impact on the housing market, however as with most economic issues, there are no simple solutions. “A key policy measure that could be helpful is tax reform,” says Rachel. This could involve removing the tax concessions that benefit high-income property owners and make things harder for young first-time buyers. However, tax reforms can be politically divisive, so many governments are reluctant to introduce them.
“Government grants for first-time buyers are also helpful, but if they are not properly targeted, they can also fuel demand and push prices up, unless the supply of houses also increases,” says Rachel. “Supply-side measures could help, such as government incentives that boost housing supply targeted at first-time buyers.”
Reference
https://doi.org/10.33424/FUTURUM638
House prices in Australia have been rising dramatically over the last few years, and the issue shows no sign of abating.
© Kenishirotie/Shutterstock.com
Rachel has shared many reports with policymakers that include analyses on the challenges that first-time buyers face as well as ideas for making homeownership more affordable. To take this further, Rachel has also developed a model to show the potential outcomes of different policies. “I am a co-designer of Australia’s first and only dynamic housing policy simulation model,” she says “I have used this model to simulate the impacts of different policies on homeownership outcomes.”
In 2023, due to her extensive policy-relevant housing research, Rachel was appointed as a member of the National Housing Supply and Affordability Council, a group that provides advice to the Australian Government on matters relating to supply and affordability. “It is extremely rewarding to work in this field because you are engaging with an issue that is important for the well-being of everyone in the population,” says Rachel. “To put it simply, housing touches the life of every single person in the world.”
Professor Rachel Ong ViforJ
John Curtin Distinguished Professor and Australian Research Council Future Fellow, School of Accounting, Economics and Finance, Faculty of Business and Law, Curtin University, Australia
Fields of research: Housing economics, intergenerational housing
Research project: Using data to study intergenerational housing inequality and suggest solutions
Funder: Australian Research Council (ARC)
About housing economics
Economists study how people, businesses and governments make decisions about how to use limited resources to meet unlimited needs and wants. They also study how these decisions shape markets, policies and everyday life. Rachel specialises in housing economics – how homes are built, bought, sold, rented and financed, and how factors such as income, interest rates, government policies and population growth affect housing supply and demand. As someone who works with data and modelling, Rachel expects that artificial intelligence will become an important tool in the near future.
Since the early 2000s, there has been a surge in house prices in many countries, so housing unaffordability has become a persistent problem and is one of the top voter concerns during elections. “Housing touches the lives of everyone, and governments can be wary of making major reforms to alter housing outcomes as they do not want to alienate voters,” says Rachel. “For instance, if governments were to implement reforms to try to lower house prices, this would benefit non-homeowners who are looking to buy, but it would be met with opposition from current property owners.”
Despite the challenges, Rachel is very passionate about her work. “Global research has shown that secure and affordable housing is vital for sustaining our well-being and health,” she says. “Living in secure housing in a good location also provides a really important base from which people can look for jobs and go to school. Conversely, those who do not have access to secure and affordable housing, or those who are homeless, will find that their health, relationships, education and job prospects are all negatively impacted. So, working in housing economics is very rewarding as you can use your research to find ways to improve population well-being.”
Pathway from school to housing economics
Studying economics and mathematics at school will help you build a solid foundation for studying economics at university. “Many students think that they don’t need mathematics to do well in economics in university, however that is a myth,” says Rachel. “Economics is quite a technical subject and therefore requires a strong foundation in mathematics.”
Taking courses such as finance or property studies alongside economics could deepen your understanding of the field.
“Develop strong technical skills, a strong grasp of economic theories, and excellent verbal and written communication skills,” advises Rachel.
Subjects such as human geography, urban planning, sociology and architecture can help you learn more about different aspects of housing.
Explore careers in housing economics
A qualification in housing economics could lead to a range of careers. You could work in areas such as infrastructure planning for local government, property development, banking finance in home lending, property consultancy, or research analysis for property data provider companies. You could even work in a university researching or teaching housing economics.
The Australian Housing and Urban Research Institute, the Joint Centre of Housing Studies of Harvard University and the Cambridge Centre for Housing and Planning Research all have a wealth of information and resources on their websites.
You can read more about Rachel and her colleagues’ research on the theme of healthy people and economies at the Faculty of Business and Law at Curtin University.
Meet Rachel
I was initially interested in physics as a teenager. In my final year of high school, I took up economics as a subject and was fascinated with studying supply and demand in the economy. When I went to university, I decided to pursue my interest in economics by enrolling in an economics and finance double degree. I enjoyed economics more than finance, but the combination of the two helped develop my technical skills.
When I enrolled in a PhD, I started developing an interest in housing economics. My PhD supervisor was an expert in housing economics, and he helped me develop a thesis that looked at the housing and employment outcomes of older Australians.
What I love most about my job is delivering research that aims to improve the housing, and therefore the well-being, of people. It’s the possibility of making a positive impact on the lives of Australians through my research.
I’m driven by a passion to make a positive difference in people’s lives. Knowing that people’s housing situations are so important in so many ways – providing shelter, a place of safety, and a strong base to access jobs and schools and raise a family – motivates my work. I’m also motivated by knowing that there’s much to do in the space of housing economics to meaningfully tackle the challenge of housing unaffordability. This has been a serious problem in Australia for 25 years and shows no sign of abating. If we don’t tackle the problem of housing unaffordability soon, future generations will suffer.
A number of things have enabled me to lead a successful career in housing economics: being committed to excellence in my research so that my work will be credible to inform policy development; having perseverance and not giving up when faced with difficult housing problems (whether academic or political); and being willing to collaborate with people from different disciplines.
To unwind from work, I enjoy disconnecting from my emails and going for a walk or a drive. I also love a good dinner – especially pasta!
Rachels’ top tips
1. Commit to excellence so that your work will be respected by others.
2. Study housing economics because you want to make a positive difference to people’s lives, not just as an academic exercise.
Do you have a question for Rachel?
Write it in the comments box below and they will get back to you. (Remember, researchers are very busy people, so you may have to wait a few days.)
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