The recent call for a first homebuyer strike from the tax reform group called Prosper Australia has received a fair amount of publicity. It’s one of those irresistible headline-grabbing stories the media loves – a little like Dick Smith’s two children per family policy.
BY CATHERINE CASHMORE
The proposal calls for first homebuyers to go on strike and refuse to purchase into a market that’s typically rising between seven per cent and 10 per cent a year. I can fully sympathise with the emotions behind this campaign. Single first homebuyers fighting to save a deposit while they’re caught on the rental roundabout are essentially priced out of the market unless they lower their expectations, or opt to purchase in the outskirts of the city.
At around 15 per cent, the number of first homebuyers currently in the market reflects these difficulties. However this isn’t because the will to purchase property has diminished. During 2009, while the Federal Government dangled the carrot with generous incentives in the form of the First Home Owner Boost – offering in some cases up to $32,000 towards the purchase of a new home – first homebuyers were at record levels.
To take advantage of this brief window of opportunity many bought their plans to purchase forward, however since the incentive has been withdrawn, affordability and a succession of quick interest rate rises has reduced further activity in this sector.
Despite this the market has not suffered any great demise. The market is currently being fuelled by second homebuyers, downsizers and investors and therefore is probably best termed a ‘discretionary market’. In a discretionary market vendors – if they can’t get their price – will generally choose not to sell.
Most people sell before they buy, so unless they’re under financial pressure to do so, they’re quite happy to wait for better times ahead.
On the flip side buyers are in the same position. Prices aren’t increasing at any great rate, therefore there’s no motivation to move quickly. Those properties that ooze buyer appeal are attracting good interest and subsequently good prices. Other properties not getting the level of interest to push the result past expected market value are generally selling via negotiation – whether it be a pass in at auction or private treaty. Therefore if there is any growth in the property market this quarter it will be modest.
The Reserve Bank of Australia have already reported that Australians are now choosing to save rather than spend, with 10 per cent of disposable household income being put aside compared to less than four per cent prior to the global financial crisis. This is reflected in current buying habits, with the trend focused on post auction negotiation rather than competitive bidding activity.
So what can a first homebuyer strike achieve? The publicity surrounding the campaign may motivate the government to think about implementing more help in the form of extra grants or incentives. However, whether renting or buying, people have an essential need for shelter, and if they’re not buying, they’ll rent. We have a rapidly growing population and relatively low supply in our inner and middle ring suburbs, therefore any more demand on rental properties will increase yields and likely ignite increased interest from investors which can only increase, not decrease competition.
As for easing the burden on first homebuyers, well the only smart way to ease house price inflation is to make the move ‘outwards’ feasible and affordable for first homebuyers who are most adaptable to adjusting into newer suburbs away from the CBD. However it’s up to market forces to determine what property in the top third of suburbs surrounding the CBD will be worth in five years’ time. Considering we have low unemployment, a good economic outlook, and continued supply and demand pressures, expect to see the number of suburbs with a million dollar median increase considerably.
What do you think about the push for a first homebuyer strike? Should first homebuyers get on board or should they simply try to get into the market when they can?
Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiates over $100m worth of property each year for clients. http://www.jpp.com.au