Conclusions 116

On the surface it appears that there has been remarkable stability in home ownership patterns since the early 1980s, despite almost three decades of economic and social change. A quarter of all Australian households are low-moderate income home owners. There are approximately three times the number of low-moderate income households who own their homes outright, most aged 65 years and over, to each household purchasing with a mortgage. However, when we look more deeply, the number of low-moderate income recent home purchasers is decreasing, and this is particularly the case for those who are buying their first home. This is of concern in view of the lag effect associated with home ownership. Households repay mortgages over 25 to 30 years, thus small changes discernible in any one year may compound over time to produce significant changes in patterns of home ownership in Australia. There is little doubt that continued contraction on rates of low-moderate income home purchase will translate into a fall in home ownership rates in coming decades.

The household income distribution of outright owners and purchasers is quite different and we use different measures of low-moderate income (lowest two quintiles) in our analysis to reflect this. The difference between these measures has increased over the years, reflecting increased household income required to purchase. Low-moderate income outright owners (at or below $31 000 p.a. in 2007–08) are predominantly, and increasingly, households who are aged 65 years and over, reflecting the conditions for home purchase which applied years and even decades ago. Low-moderate income purchasers (at or below $76 000 p.a. in 2007–08) are also older than in the early 1980s and there are changes in household type. Once more than half were families with dependent children, now the majority are households without dependent children. This applies even more strongly when we look at low-moderate recent first-time purchasers. Some of this may be explained by socio-demographic change but it also appears that families with children have borne the brunt of housing affordability problems.

Low-moderate income home purchase has been sustained through purchasers taking on large mortgages in a deregulated financial environment, with repayments often exceeding established affordability benchmarks based on a ratio of mortgage payments to household income. This is particularly the case for recent purchasers. Rates of low-moderate income purchase have also been sustained more than might

have been the case because many such purchasers face repaying loans at a later age in 2007–08 than in 1981–82. This may not be a problem for some households in view of policies to encourage people to work for longer, but others will confront the problem of having a mortgage as their income earning potential declines, and even into retirement.

The risks faced by households in making ongoing expenditures as a consequence of home purchase need to be investigated more carefully to take into account differences in household type and income levels. Our analysis of household income, housing and non-housing expenditures and debt suggests it is important to distinguish between housing stress, financial hardship and financial crisis, all different concepts of affordability of increasing severity. We estimate that of low-moderate income purchasers:

Æ Using the 30/40 benchmark, 43 per cent are in housing stress.

Æ Using the low cost budget standard method, 25 per cent experience financial hardship.

Æ Eight per cent are in financial crisis when ongoing housing repayments are seen in the wider context of net debt.

Of most concern are those households in financial crisis who are on the brink of falling out of home purchase because of systemic financial problems. Households who experience housing stress and financial hardship appear to be coping despite pressures and compromises. It is important to distinguish between these three concepts for potential policy and industry guidance.

Notwithstanding the evident financial hardship which some low-moderate income households face in the early years of repaying a mortgage, it appears that home purchase has been a good strategy for household wealth accumulation over the period 1981-2008 due to a sustained increase in residential property prices in our case study (Melbourne). Even in this context, however, there are risks associated with timing and place.

Despite long-term and sustained price increases, house prices can decline and did so in the early 1990s in Melbourne, which affects wealth if a household has to sell. Those who sell within three years have a higher probability of loss of wealth, and evidence from repeat sales data show that this risk is greatest in lower price markets, Increasingly, therefore, it is recent low-moderate income purchasers in outer suburban and growth zone areas who bear this risk. It is impossible to predict what will happen to Melbourne housing prices in the future, but any decline would clearly affect capacity to generate housing wealth.

There was fundamental restructuring of housing sub-markets in 1981–2008 as demonstrated by the house price curves for Melbourne residential corridors. Low- moderate income purchasers have been increasingly restricted, especially since the mid-1990s, to buying in the outer suburbs and outer growth zone, particularly if they want to buy houses. The extent of wealth increase in these areas is less than for those buying in inner and middle suburbs. In consequence, it is increasingly difficult for low-moderate income purchasers to trade up to middle and higher priced areas to improve their housing wealth, even if have accumulated substantial equity in their homes. Many will be restricted in their residential mobility unless they have very large increases in household income to sustain much greater mortgages. However, the caveat is that analysis of the residential saver model indicated that low-moderate income purchasers in selected outer suburban areas were still largely better off financially in buying rather than renting and saving in the same areas 1999–2008. The

study suggests that we will see increasing disparities in the wealth of home purchasers, and subsequently owners, in the future. There is the additional prospect that wealth disparities will increase over time as residential property is passed to other family members tax-free through inheritance.

The qualitative component of the study focused on low-moderate income recent purchasers in the growth zones of outer Melbourne. Those interviewed see many benefits in purchasing a home. Although all reported financial strain and some were experiencing considerable financial hardship as a result of their purchase, they were reluctant even to consider that there might be risks. These households had often compromised on location because of their income, but they wanted above all to own a house. This meant living in places that were sometimes distant from work and family and friends. Those interviewed saw buying a home to live in as their priority, rather than thinking of purchase in terms of an investment. They were driven by the psycho- social benefits they associate with owning a house: security, control and stability. They did not consider that buying in a lower price area compromised these benefits, but it is not possible to see a direct connection between these psycho-social benefits and wider social benefits.