Life goes on for first-home buyers despite warnings about Australian debt levels

 Gabrielle Lyth and Mitchell Cook.
Gabrielle Lyth and Mitchell Cook.

BY sleeping in their car to keep a spot at the head of the queue, young Hunter couple Mitchell Cook and Gabrielle Lyth are engaged in the time-honoured tradition of finding the block of their dreams, and doing whatever’s necessary after that to hold onto it.

Property prices are sky-high now – there is no getting away from that – but the truth is that for most Australians, it’s always taken a lot of effort, and a lot of sacrifice, to enter the housing market. Things are generally easier the second time around, with years of mortgage repayments putting some equity into the family home, but for anyone entering the market for the first time, the property you really want is usually going to be that little bit out of reach.

Individually, we make decisions about houses that are usually based around how much we can borrow, with most mortgage holders willing to continue making sacrifices if they’ve bitten off more in the way of debt than might otherwise be prudent. 

Over the past 20 years or so, such risk-taking has been justifiable because the sustained rapid increases in housing costs make the prices of past years look quaintly small, like the vision of something viewed the wrong way through a telescope.

Collectively, however, the result has been to lift the levels of national indebtedness to previously unheard of highs. Earlier this month the Reserve Bank issued new data on housing prices and household debt, showing housing costs have more than doubled – in real terms – since the 1990s. Household debt has risen in almost a straight line from three-quarters of household income 20 years ago to 1.9 times household income today. In other words, we owe almost twice as much as we earn – a level of risk that an increasing number of previously sanguine regulators are now starting to acknowledge.

At a household level this is reflected in rising mortgage stress, which has also risen sharply in the past few years. 

This month marks the 10th anniversary of the global financial crisis. While low interest rates and trillions of dollars in “quantitative easing” might have saved the banking system, they have also pumped up asset values – including the family home – to stratospheric levels. For young first-home buyers like Gabrielle Lyth and Mitchell Cook it means finding $600,000 to get a foot in the door. It might be cheap by Sydney prices, but it’s still an awful lot of money.

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