‘We’re conning young people’:The double whammy trapping first home buyers

Renters are facing a double whammy of rising rents and soaring house prices,combining to make it harder to get a foot on the property ladder.

It now costs $50 a week more than it did a year ago to rent the median house in Sydney,Domain figures released last week show,while apartment rents rose $20 a week.

Sarah King’s rent increased by $100 a week,making it harder to save for a home deposit.

Sarah King’s rent increased by $100 a week,making it harder to save for a home deposit.Wolter Peeters

Sarah King was saving hard to buy a home and then her rent shot up by about $100 a week.

“My husband and I had a really serious savings plan,” the 40-year-old said. “We’ve had to reduce it the last few months since we’ve moved,because of increasing costs.”

Ms King and her husband,43,managed to pay a deposit on an off-the-plan home last month but are still saving towards the stamp duty bill which is due when it settles next year.

They were given notice to leave their Potts Point apartment mid-last year and faced a competitive market,eventually securing a Bondi rental for about $100 more a week.

Finding a rental property at an affordable price can be a challenge.

Finding a rental property at an affordable price can be a challenge.Peter Rae

“Getting into the property market is important to us so that we have something of our own,” she said. “It’s been that balance for years of perpetually renting and not being able to save enough for a home deposit.”

Like many Sydneysiders,she is grateful for a modest gift from her mother and,like a growing number of young people,she looked for a way to boost her savings when bank deposits pay scant interest.

Ms King works as the head of advice and client care at online investment adviser Stockspot and used the service herself to invest.

“We’re helping a lot of clients save for a house deposit by investing,it’s hugely popular,” she said.

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The Australia Institute chief economist Richard Denniss said it was an “enormous challenge” to try to buy a home in the face of rising rents and rising property prices,highlighting the tax concessions on offer to investors.

“No one should be surprised that investors who are bidding up the price of houses are substantially increasing the rents they’re charging. That’s the plan,” he said.

“I think house prices are too high and it would be good if they went down,but no politician wants to say that out loud because two-thirds of Australians either own a house or are paying one off.

“We’re conning young people. We’re pretending we’re trying to solve a problem,but for two-thirds of the Australian population,they don’t feel a problem.”

Mr Denniss called for reform of the capital gains tax discount – a position now rejected by both major political parties – and for policymakers to reconsider the complete exemption of the family home from capital gains tax.

He also suggested a rethink of public housing.

“Defence Housing Australia,for example,provides low-cost housing to tens of thousands of defence force personnel. Why couldn’t we do that for teachers,nurses and aged care workers?”

Mortgage broker Aaron Christie-David is seeing first-home hopefuls trying to save while a chunk of their incomes go towards rent and house prices rise.

Some renters struggling to save are getting help from the Bank of Mum and Dad.

Some renters struggling to save are getting help from the Bank of Mum and Dad.Peter Rae

“It’s what I call getting caught in the rental trap,” the Atelier Wealth managing director said. “It hurts their confidence … and it kind of feels like the goalposts are always moving because by the time they’ve saved a bit more,prices have nudged up.”

To fast track a deposit,more and more buyers are getting gifts from the Bank of Mum and Dad,he said.

He advised first-home hopefuls to find out if clearing their student debt would increase their borrowing capacity and consider lenders that are offering to waive mortgage insurance for those who have saved 15 per cent deposits instead of the usual 20 per cent.

Buyer’s agent John Carew is also seeing parental assistance as a “really common” feature of the market now,as Baby Boomers bring forward their transfer of wealth to priced-out offspring.

Some potential buyers are living with family to cut costs,but both scenarios – living at home or looking at the size of their rent bill every month – motivate potential buyers to find their own place,he said.

“There does seem to be a bit of upward pressure on rents now in Sydney,” the Mayfield Property Buyers founder said. “They say,‘rent money’s dead money,we just want to get into the market’.”

Elizabeth Redman is a property reporter at The Age

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