Housing affordability: Gen Y slightly worse off than Baby Boomers

Belinda Punshon 21 April 2016

How has housing affordability progressed through the passage of time?

generation-debateWhen it comes to housing affordability, Gen Y has it in for Baby Boomers and vice versa. It’s the battle of "who’s the victim?" or "who had it tougher?". While new figures point to improved housing affordability across the board, how does affordability for first home buyers compare now to then? And is housing affordability comparable between the two generations?

The latest price growth trends from the Domain March Quarter (2016) report show that median prices have dipped in every capital city, except Melbourne and Hobart which are up 1.2% and 4.3% respectively. Darwin saw the greatest slump in price growth (-4.9%)  followed by Sydney which saw a -1.5% drop.

With the news that the median house price in Sydney fell below $1 million for the first time in a year, the media is buzzing. Combine the cooling housing market with a low-interest rate environment, and first home buyers should quit complaining, right? However, it seems that first home buyers are still getting the rough end of the stick.

Although low-interest rates make the cost of borrowing cheaper and more accessible, they also drive up the cost of housing due to greater demand. So, how does current affordability stack up against the Baby Boomer scene?

Back to top

The numbers: Baby boomers versus Gen Y

Despite popular belief, baby boomers weren’t without their affordability blues. A 1980’s Baby Boomer rate of 17.0% is unthinkable in today’s market where mortgage holders currently repay 5.35% interest.

According to figures from Property Update and analysed by finder.com.au, in the late 1980s, average home loan rates rose to 17%. Coupled with this, house prices fell, which forced many borrowers to sell up.

The average loan size in NSW for owner-occupiers in the 1980s was around $80,000 while the average rate was 17%. Over a 30 year term, monthly repayments were around $1,140.54 and weekly repayments were $285.14. At this time, the average person was earning around $620 per week. Thus, the weekly repayment of $285.14 represented a ghastly 45% of average weekly earnings.

Fast forward to 2016 where the average home loan rate is 5.35% and the average loan size in NSW is $416,000. Assuming the same loan term as above, the weekly repayments would be around $536 per week. If we compare this to the average weekly earnings of NSW of $1,712, this represents 31% of average weekly earnings.

In the late 1970s-80s, the average NSW home buyer took three years to save their deposit. In 2015-16, the average NSW home buyer took nine years to save their deposit.

Interest rateLoan sizeIncome/mortgageTime to save for deposit
198917.0%$80,00045%3 years
20165.35%$416,00031%9 years
Back to top

Both generations have suffered

So who loses out on the affordability debate? While the numbers suggest that Gen Y may have it tougher, it's difficult draw comparisons due to the large number of variables to consider. However, it's clear that owner-occupier in the 1980s and today have both struggled to comfortably service a mortgage.

In fact, both generations encountered mortgage stress by using more than 30% of income to repay a mortgage.

Then there’s the socio-economic and cultural factors to consider.

Arguably, young people in the 1980s were more likely to have a combined income compared to young people today. A higher rate of saving was also encouraged in the post-war era and Baby Boomers didn’t have to contend with a $50,000 HECS/HELP tertiary education debt.

However, there is no real substance in saying that Gen Y has it tougher than their older counterparts. You cannot accurately compare two distinctly different times.

The passage of time has not done a lot to improve housing affordability. Both generations have suffered in their own right.

Back to top

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

Ask a question