Research shows cost of buying a home rocketed by 130 per cent over two generations

It’s proving much harder for Generation X to buy a home than their older relatives – and the outlook is grimmer for younger Australians.

The lifetime cost of buying a home rocketed by 130 per cent over two generations, an analysis has found.

According to a new report by inequality-focused think tank Per Capita released on Thursday, there has been a significant increase in the lifetime expenditure on the median mortgage over three decades and a consequent reduction in the spending capacity of average Australian households.

The analysis compared home prices, mortgage interest rates and wage changes to see what proportion of a median income would go to covering the cost of the median mortgage for different generations.

For a family in the Silent Generation – defined as being born between roughly 1925 and 1945 – buying a home in 1970 required an average repayment cost over the course of the mortgage representing 11.2 per cent of their gross income.

For a Baby Boomer family buying a home in 1985, that figure had risen to 19.5 per cent.

And for a Generation X family who bought in 2000 and have about nine years left to go on their mortgage, Per Capita estimates they will spend 25.5 per cent of their gross income just servicing mortgage debt.

For them, low wage and inflation growth means that their debt declines much more slowly in real terms than for previous generations, Per Capita says.

“We estimate the Gen X family is paying $1425 per month on their mortgage in 2021,” report author Matt Lloyd-Cape said.

“If they were on the same repayment trajectory as the Boomer family, their monthly bill would be $910, while if they were on the Silent Generation trajectory it would be just $440 a month.”

The much higher cost of securing a home puts a significant constraint on household consumption, which accounts for more than half of Australia’s economic activity, he points out.

The research argues that the Consumer Price Index, by treating a home purchase as an asset investment rather than as a daily expense, fails to adequately account for the cost of living increase for mortgagee households over the past 50 years.

“Given that Australia’s social welfare model is predicated on mass home ownership, factoring the total cost of a home purchase must be incorporated into cost of living measures,” Mr Lloyd-Cape said.

“We hope that this paper will contribute to a renewed focus on how low inflation and wage growth are contributing to intergenerational inequality, in this instance through the housing market.”

And it’s tough out there for renters, too.

Recent CoreLogic analysis suggests servicing a mortgage is cheaper than paying rent on 36.3 per cent of Australian properties – up from the pre-COVID proportion of 33.9 per cent reported in February last year.

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