First home buyers are close to record lows in many of Australia’s states and they are below the long term average in every state except Western Australia. As at the end of April 2017, first home buyers comprised just 13.9% of all owner occupier mortgage demand nationally. The situation is worse in New South Wales, where first time buyers comprised only 8.4% of the market over the first four months of the year so far; based on the long term average, first home buyers ‘normally’ comprise around one fifth of owner occupier demand across New South Wales.
With first home buyer participation declining as prices rise, it’s an easy connection to suggest that housing affordability is to blame for the low participation rate, but that is probably only part of the reason. South Australia, for example, doesn’t have the same affordability challenges as New South Wales, yet first time buyers are the second lowest of any state at 12.2% and first time buyer activity in Victoria (16.6%) is more substantial than participation in Tasmania (15.2%) where housing is the most affordable of any state.
Availability of jobs is an important factor for first home buyers and this is likely to be one of the factors supporting first time buyer demand in Victoria, even though stamp duty rates (prior to July 1) are high and affordability measures are the second highest of any capital city outside of Sydney. Over the past five years 39% of the jobs created nationally have been in Victoria which is substantially higher than the long term average of 24%.
The two states where first time buyers are most active, at least on a proportional basis, are Western Australia, where first time buyers comprise 28.4% of owner occupier mortgage demand, and Queensland at 21.5%. First home buyers are higher than the long term average in Western Australia and Queensland first timers are close to the long term average participation rates. Jobs growth has been mild across both states over the past five years, however housing prices have been tracking lower in Perth and increasing roughly in line with incomes in Brisbane. The dwelling price to income ratio in Brisbane is 5.9 and in Perth its 6.0; substantially lower than the larger capital cities. It’s likely that the healthier affordability of housing in these regions, despite the mild jobs growth, is a primary factor in supporting first time buyer demand.
Other factors come back to transaction costs, particularly the cost of stamp duty and deposit. There is a high likelihood that stamp duty exemptions for first home buyers, which go live on July 1st in Victoria and New South Wales will temporarily boost first time buyer numbers in the market. While the exemptions are likely to drive first home buyer demand, it’s likely that additional demand concentrated across the lower priced end of the market could simply push prices higher over the short to medium term.