December 2019

This is the 20th in a series of articles summarising monthly news and happenings in Sydney real estate, and more broadly.

The First Home Buyers Scheme: 2020

On January the first, 2020, the Federal Government is looking set to introduce its promised (and somewhat controversial) first home owners scheme. This scheme will allow up to 10,000 prospective first time home buyers per year a significant leg up towards their home ownership.

Whereas currently a 10-20% deposit is the norm for applying for a mortgage, the scheme will gaurantor buyers for all but 5% of a deposit. To put that in context, a deposit for a $400,000 starter home will require a (mere) $20,000 deposit rather than $40k or more. In addition, with interest rates at an all time low for the foreseeable future, there may be no better time to buy.

Whilst definitely better than nothing, the scheme has however been criticised for a number of reasons. Firstly, as it operates on a first-come-first-served basis, it will naturally favour better organised applicants and, as 2020 will be the first time it operates, there is an expectation the annual quota will be used up very quickly. Cameron Kusher, writing for The Real Estate Conversation, claims that there has been over 100,000 first home buyers per annum over the last few years. If this trend continues into the future, only 10% of those eligible will be able to access the scheme per year. One would hate to have been 10,001 on the list!

Another major criticism of the scheme is that it seems to do nothing to actually increase housing affordability. In fact, given the undoubted glut of first home buyers anxiously waiting for the scheme to start, competition for lower cost housing may well increase prices sharply in the lowest quartile of the market (If you are looking at selling your own first home, the first few months of the year may become the best time to do it). If the Government is set on this quota system, perhaps a monthly quota rather than an annual one might spread out this impact, and be fairer for people ready in September for example.

So then, if you see this as your big chance to buy your own home, there’s just the little question of where to scrape up the 5% deposit before the scheme launches. 5% is a small percentage, but based on Australian housing prices, particularly in the major centres, it’s still a large dollar amount.

For those of us lucky enough to be at least a second or third generation Australian, possibly the only place you may need to look is to your elders. After all, recent stats on show that the over 55s own over half of all Australian household wealth. If you have no other choice, taking off the hat and having the right word to the right family person may be a practical option.

To put the amount of wealth older generations have in context, in a separate article, research by Danielle Wood and Kate Griffiths from the Grattan Institute discussed the unequal distribution of wealth throughout the different generations:

“For most of the 20th century, each generation was wealthier than the one before it at the same age,” Ms Wood is cited as saying.

“But in the US, UK and many European Union countries, millennials have lower wealth than members of earlier generations at the same age. There is a risk Australia could go down the same path.”

The last thing, at this stage, is to keep in mind the goal: to get into the property market. It’s not necessarily about finding domestic nirvana. The first place you buy will probably not be your Instagram dream home, BUT you don’t need to stay in it forever. The main thing is to get out of the rent-paying cycle and start investing in something you actually own. The Eastern Suburbs pad overlooking the ocean may need to be tucked in the back pocket for the moment, but that doesn’t mean it won’t be possible in the future.