ACROSS THE GENERATIONS: TWENTY YEARS OF HOUSING

KEY FINDINGS

· Fewer younger households (reference person aged under 35) owned their own homes in 2015-16 than the previous generation of younger Australians twenty years ago;
· First home buyers are on average purchasing their first homes at a slightly older age than they did in 1995-96;
· Fewer middle year households (reference person aged 35 to 54 years) owned their homes outright in 2015-16 than two decades ago;
· More older households (reference person aged 55 years and above) had a mortgage on their primary dwelling in 2015-16 than households with similarly aged household reference persons in 1995-96;
· The proportion of older households renting from private landlords has increased over the last two decades;
· A greater percentage of income is being spent on housing costs by older households than households with similarly aged household reference persons twenty years ago.

These changes have been occurring consistently but gradually since the Survey of Income and Housing (SIH) was first conducted in 1994-95. This article will focus on results from the 1995-96 SIH and the most recent results from the 2015-16 SIH to highlight the changes over two decades.

INTRODUCTION

Housing in Australia has changed significantly over the last two decades. In 1995-96, over 4 out of every 10 households (43%) owned their home without a mortgage but by 2015-16 this decreased to 3 out of every 10 households (30%). Having a mortgage is more common, increasing from 28% to 37% over this period.

These changes have mostly been fuelled by large property price and housing cost increases. The average real median dwelling value increased from $229,000 to $520,000 between 1995-96 and 2015-16. Similarly, average weekly housing costs have risen from $163 to $290 per week over this period in real terms.

The impact of these changes has not been experienced the same by all households. Due to growing housing costs, property ownership is being achieved at later ages than two decades ago. Rising property prices also mean that some households may not be able to purchase property at all. This makes housing ownership and affordability a key area of social concern, particularly for younger generations, who two decades ago had access to more affordable housing options. The growing proportion of older households entering retirement years without the added security of owning their own home outright, and who are spending more of their income on housing costs than older households did twenty years ago, also presents challenges for Australia’s retirement income system.

This article examines three age groups at two time points: 1995-96 and 2015-16, and how housing occupancy, costs and affordability have changed. Younger households are those in which the household reference person is aged under 35 years. Older households are those with a reference person aged over 55 years, while middle year households are those in which the household reference person is aged between 35 and 54 years.

Housing costs include all costs associated with maintaining the tenure of a dwelling, including any rent, mortgage repayments (interest and principal) as well as water and general rates payments. Often housing costs are compared to gross household income, referred to as a housing affordability ratio. The proportion of households paying more than 30% of gross household income is used to identify those households most at risk of facing hardship in meeting their current housing costs. This article will examine the relative change in affordability for different age groups in 1995-96 and in 2015-16 to better understand the overall trend.

Younger households (household reference person aged under 35 years)

Renting is the most common choice for younger people, who often have only recently finished their education, started their career, and may be saving to purchase their own home. Over half of younger households (57%) lived in privately rented dwellings in 2015-16. This rate increased from 42% of younger households in 1995-96.


The average housing affordability ratio for younger households was the same in 2015-16 as it was in 1995-96 (19%). Similarly the proportion of younger households spending more than 30% of their income on housing costs has remained at a similar rate of 26% over this period. Average housing costs have risen, by 60% from $249 per week in 1995-96 to $398 per week in 2015-16 in real terms.

The average age of the household reference person of all first home buyers was 33 years in 1995-96, and was 34 years in 2015-16. Also, the proportion of younger households dropped - from representing 69% of first home buyers in 1995-96, to 63% in 2015-16.

The proportion of younger households with a mortgage has remained relatively stable over the last twenty years (35% in 1995-96 to 34% in 2015-16). For younger owners with a mortgage, average weekly housing costs have risen by 33% from $371 to $494 per week between 1995-96 and 2015-16.

Despite this, there has been a decline in home ownership among younger households between 1995-96 and 2015-16, driven by the falling rate of outright ownership. In 1995-96, nearly one in ten younger households (9%) owned their dwelling without a mortgage, however by 2015-16 this was one in fifty younger households (2%).

Middle year households (household reference person aged 35 to 54 years)

Home ownership is the most common form of tenure among middle year households. Over the past two decades, the rate of home ownership has decreased from over three-quarters (76%) to just over two-thirds (67%). Renting from a private landlord became more common among middle year households between 1995-96 and 2015-16, increasing from 16% to 26%.


Having a mortgage is now the more common form of ownership for middle year households. The proportion of those with a mortgage increased by 15 percentage points, from 41% to 56%, while the rate of ownership without a mortgage in 2015-16 (12%) was only one-third the rate in 1995-96 (36%).

More first home buyers are middle year households than two decades ago. The proportion of first home buyers of middle year age increased from 26% to 33% between 1995-96 and 2015-16.

The housing affordability ratio of middle year households is generally lower than that of younger households. This is likely because some households are able to pay off their homes, and because incomes typically increase through working life up to retirement age. Between 1995-96 and 2015-16, there has been little change in the housing affordability ratio for households between 35 and 44 years of age, at around 16%, but it has increased for those aged between 45 and 54 years, from 9% in 1995-96 to 13% in 2015-16, reflecting the fact that relatively more of these households have a mortgage.

The proportion of middle year households spending more than 30% of their income on housing costs remained steady for those with a reference person aged between 35 and 44 years (at around 20%) but increased for those between 45 and 54 years, from 12% to 19%.

Older households (household reference person aged 55 years and over)

The majority of older households own their dwelling. This rate has maintained relatively stable over the last two decades, at 84% in 1995-96 and 83% in 2015-16. There was a slight increase in the proportion of older households who were private renters, up from 6% in 1995-96 to 10% in 2015-16.

Despite the relatively stable home ownership rates overall, ownership without a mortgage has fallen to 62% of older households in 2015-16, down from 77% in 1995-96. The rate of older households still paying off a mortgage has tripled between 1995-96 and 2015-16 (from 7% to 21%).

Having a mortgage later in life may be due to several possible factors. With many household members working until they are older (and past traditional retirement ages) they may also plan to finalise mortgages at older ages than in the past. In some cases, households may opt to keep their mortgage active longer to take advantage of redraw facilities as an accessible line of credit. The large rise in property prices, particularly over the last ten years may also be a factor. However for older households, who are likely to have started their mortgage prior to this rise, property price is less likely to be an influence.

The affordability ratio has remained relatively stable for households aged 65 years and over (8% in 2015-16), but has risen for households where the reference person was aged between 55 and 64 years, from 7% in 1995-96 to 10% in 2015-16. Between 1995-96 and 2015-16, the proportion of households with a reference person aged between 55 and 64 spending more than 30% of their gross income on housing costs increased from 8% to 14%. For households aged 65 or over this rose from 5% to 9% over the same period.


Home ownership provides a form of secure and stable tenure and a way to reduce the cost of housing (after paying off mortgages). It is important to consider the implications of later home ownership in the context of Australia's retirement income system. For example, aged pensions have until now been set at lower levels than in comparable overseas countries¹ as retirees have been mostly outright home owners. In the future, aged pensions for those retiring without home ownership may need supplementation, increasing the cost of such outlays, potentially a major structural change to the Commonwealth budget. But the impact of later home ownership among younger generations has implications too. When households take on a mortgage, it will be more costly and will take longer to repay than it has been for previous generations. For many households, home ownership will occur later in life than it has for the previous generation, while for others, it might not be something that happens at all.

1. Dr Ben Spies-Butcher, ‘A Political Economy of Housing’, lecture presented at Shelter NSW, ‘Housing economics for non-economists’ 7 March 2017.