Australian First-Time Home Buyers: Pandemic Policies May Have Intensified Hurdles and Disparities.

First Home Buyers (FHBs) in New South Wales (NSW) are finding it more difficult to obtain home ownership, and government intervention during the COVID-19 pandemic may be partly to blame.

A recent study of FHBs suggests that economic responses during the pandemic to spur recovery may have an inflationary effect on real estate prices, making it more difficult for those looking to buy their first home. Research recently published in the journal buildingsis one of the few qualitative studies to look at the potential impact of a fiscal stimulus on FHB entry during a pandemic.

For the study, the researchers surveyed 61 FHBs in New South Wales about their experience entering the housing market during the pandemic, where important economic policies for COVID-19 were in effect, including interest rate cuts, pension drawdowns and mortgage moratoriums. Income Supplemental Programs.

About 71% of respondents said their purchase price range had increased during the pandemic, and 83% said the process had become more difficult and complex, making it more difficult to access home ownership.

The researchers concluded that economic policies — even those aimed at promoting home ownership, such as first-home loan deposit schemes — may be to the detriment of FHBs by increasing housing demand and warming the market.

says Associate Professor Chi-Lin Lee, a study co-author and Disciplinary Director for Construction and Property Management at UNSW Sydney.

Increased barriers to home ownership

Homeownership in Australia has been on the decline for decades. One of the main barriers to entry for FHBs, Lee says, is the widening deposit gap, which has increased exponentially as home prices soared during the pandemic. Real estate prices in the capital increased by about 20%, which increased the time and money needed to make a down payment.

“As the income-to-home price ratio continues to expand during the pandemic, FHs have reported taking longer to make deposits,” Lee says. “In the meantime, investors, particularly those already in the market who have benefited from higher home prices, can refinance another purchase and are seen bidding on FHB shares with ease.”

Respondents emphasized market inequality as the biggest challenge, with 48% attributing the difficulties to investors and the benefits of existing home ownership from favorable tax policies when owning or selling real estate.

“Not only do capital gains tax rebates and passive standby policies encourage investor activity and increase pressure on house prices, but monetary policy, such as record low interest rates during a pandemic, can be seen as an additional incentive to encourage investment,” Lee says.

As a result, FHBs indicated increasing reliance on mother and father’s bank, taking on more financial risks, and moving to regional areas to enter the market.

Only 27% of respondents considered paying a 20% deposit. Meanwhile, 21% of respondents received a gift to help them make a deposit, and about 12% received a guarantee. And 77% also said that buying any property was more important than finding their perfect home.

“Even before the pandemic, many FHBs were finding it difficult to get into the market, as many expected the situation would likely get worse,” Lee says. “This leads to a fear of missing out, causing many to take on higher levels of debt, rush into purchases without completing thorough due diligence, and move for reasons of affordability or lower their expectations of their first property.”

Sydney, in particular, has become almost impossible to get into without much help and is already the least affordable city in Australia for housing and the second least expensive city in the world.

Although 72% of respondents were eligible for some form of government assistance, only 30% received support. Also, 70% said government support is insufficient given real estate prices.

While many economic responses have since ended, including historically low interest rates, Lee says FHBs may continue to struggle to enter a market with reduced borrowing capabilities even if home prices fall.

“Policy makers should consider expanding support for FHBs beyond demand-side support and investing more resources in supply-side interventions, essentially bringing more housing into the market,” Lee says.

“This would help FHBs who may be spared the effects of pandemic economic stimulus measures long after they have ended.”