Delaying home purchase can have consequences

With the bedrock of Australia’s retirement system relying on home ownership, indefinitely delaying buying a home can have negative effects.

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Home ownership in Australia has contracted in the last two decades, with new research warning of the consequences of indefinite deferral of home purchase.

A new report released by the ARC Centre of Excellence in Population Ageing Research (CEPAR) investigating the links between home ownership and population ageing has found that home ownership has slipped by 3 to 4 percentage points in the last two decades.

Total home ownership hovers around 59 per cent to 70 per cent depending on the measure, according to the research.

Young households of all incomes have led in this drop, along with middle-aged households with low incomes.


The researchers warned in the report that lifetime home ownership rates will decline if some people defer home purchase indefinitely.

CEPAR director and Scientia professor of economics at the University of New South Wales Business School John Piggott said: “Banks may be reluctant to lend past a certain age, given retirement ages are increasing more slowly (by three years over the past 50 years).”

“Greater shares may retire with debt (36 per cent of home owners do so now). There is the potential that in the future more older people end up renting, and if so, we need a safety net to support them as the current retirement income system is failing renters.”

The research attributed the declining home ownership rates to declining affordability. Over the past 20 years, house prices grew faster than household incomes.

Common explanations for this point to cyclical and structural factors, including a surge in rental demand for new migrants, as well as lower cost and greater allocation of credit to investors, supported by tax rules (negative gearing and capital discounts).

Another factor includes a supply lag of about 10 years between peak increase in demand and peak increase in supply, up from three to five years in the past.

Housing with an ageing demographic

According to the report’s lead author, Rafal Chomik, a CEPAR senior research fellow at UNSW Sydney, over the past 50 years the median age of home purchase has increased by six years from age 27 to 33.

“Over the same period, the median age of getting a first job has increased by two years, finishing education has been delayed by five years, having a child has been delayed by seven years, and getting married is now taking place eight years later,” Mr Chomik said.

“In fact, the median age at death is now 12 years later, adding scope for people to catch up and purchase a house later in life.”

Deferring their first home purchase by nine years would still probably see younger generations experience home ownership longer than their parents, according to the research.

Retirement system failing renters

The research cites major concerns the current retirement income system is failing renters. This is due to the continued exclusion of the home from the means test, undifferentiated age pension payments, and rent assistance levels that are pegged to the wrong index, which the report argues, results in a wide financial gap between renters and owners.

The report said the system review reporting in 2020 is an opportunity to narrow this gap.

“While super is important for young, low-income households, we are yet to understand how much it constrains their investment in housing,” the report said.

“The two are complements. Super is more liquid in retirement, while housing investment can be leveraged and therefore results in greater wealth accumulations when prices are rising.”

According to the report, older renters continue to remain vulnerable. While figures stating old-age poverty in Australia is high is inaccurate, new estimates that take account of housing suggest older Australian renters have among the highest relative poverty rates in the Organisation for Economic Co-operation and Development (OECD) countries. They also have greater rental affordability stress than other age groups.

“In a world where the divide between renters and owners is increasing, funding pension or rent assistance increases for renters could be the imperative needed for action,” the report said.

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