Home ownership rate can now rise back towards 70 per cent

Having declined in recent years, home ownership in Australia is set to rise again.

Home ownership downtrend

Australia’s home ownership climbed to a then-record high of 70 per cent in 1961 and proceeded to remain stable for about half a century. However, the 2016 Census showed that the home ownership rate in Australia had declined to 67 per cent, through a period where investors had been very active in the market. Despite this the home ownership rate could rebound towards 70 per cent over the next three years.

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By 2018, we could see from government data that while home ownership rates for those with a mortgage had been relatively stable at 37 per cent, ownership rates for those with no mortgage had continued an ongoing downtrend to 30 per cent, well down from 42 per cent in 1995.

Furthermore, those renting from a housing authority had halved from 6 per cent of the market in 1995 to just 3 per cent, as governments have tended to step away from the construction of new social housing.

Figure 1 – Home ownership by tenure

The share of the market renting from private landlords has increased by 18 to 27 per cent since 1996, but over the past five years it has been increasingly difficult for private investors to access loans, leading to a chronic shortage of rentals in many parts of the country.

However, border and other restrictions have seen a dramatic decline in the number of temporary visa holders in Australia from 2.4 million to 1.8 million, we’re approaching full employment for the first time since the resources boom years, and a raft of measures have been made available to promote home ownership across the younger age cohorts.

First homebuyers return

The recent first homebuyer stimulus through the coronavirus recession saw commitments from first homebuyers soar to the highest levels since the Rudd stimulus through the global financial crisis.

Given the Covid stimulus impact it’s entirely possible that the 2021 Census data will show a modest increase in the home ownership rate when it’s released in the coming months.

Figure 2 – First homebuyer loans

It is true that with the real cash rate deeply in negative territory more investors have been coming into the market of late, but it’s worth noting that the younger cohorts also often enter the market as first-time investors rather than homebuyers these days.

Figure 3 – Housing credit growth

Moreover, with both sides of politics promoting schemes to bring more first homebuyers into the market over the coming years, it’s possible that the home ownership rate can rise back towards 70 per cent by the time of the 2025 election.

Election pledges for first homebuyers

The Australian Labor Party launched its election campaign in earnest this weekend and immediately announced a new Help to Buy scheme to help 10,000 low- and middle-income first homebuyers per year into the market through a shared equity scheme.

Previously, the incumbent Coalition party had pledged in its Federal Budget a huge expansion of its deposit guarantee scheme to 50,000 places per year, comprising 35,000 capital city first homebuyers, 10,000 regional first homebuyers, and 5,000 places for single parents, who may receive a guarantee with a deposit of only 2 per cent.

While the election result is yet to be seen, it’s clear that both sides of politics are looking at demand-side measures to improve access to home ownership for younger Australians.

Both sides of politics are looking at demand-side measures to improve access to home ownership for younger Australians.

The deposit hurdle is known to be the major barrier to home ownership, and Labor’s proposal will require buyers to have only a deposit of 2 per cent to obtain a loan through a qualifying lender, while the proposed scheme is set to see a contribution of up to 40 per cent of the price of a new home.

The merits of this scheme and any countering announcement from the Coalition will be hotly debated, but it’s clear that there will be more opportunities ahead for first homebuyers to enter the market and home ownership rates should rise as a result.

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