Parent help into first home skyrockets

Trend raises the possibility that we will live in an increasingly divided society

More than half of Australian first-home buyers now receive help from their parents to get a toehold in the property market. And why not? Many Australians aged 55 to 75 have built up large amounts of personal wealth thanks to the rapid rise of house prices in the decades since they first entered the property market.

But the trend raises the possibility that we will live in an increasingly divided society, where economic inequality is passed down through the generations.

The rise in property prices that has boosted homeowners’ wealth has also put home ownership out of reach for their children. What parent wouldn’t want to tap into the equity in their own homes by way of a loan, a gift or a mortgage guarantee to help their children on the path to financial security?

Data collected by Digital Finance Analytics shows the extent to which parents are helping. In March 2010, just 3.3 per cent of first-home buyers received help from their parents.

By the end of 2017, that figure had skyrocketed to over 55 per cent. About two-thirds of those received help with putting together a deposit large enough to make a property purchase, according to the Digital Finance Analytics data.

And where parents chip in for the deposit in one way or another, the average value of their help is more than $88,000.

This is a huge leg up for young people looking to buy their first house because the main issue with housing affordability is not so much meeting the repayments — the current era of low interest rates means they are generally affordable. The big difficulty is assembling the deposit, particularly in Sydney and Melbourne where property prices are the highest.

This trend puts those with parents wealthy enough to help them into the housing market in a strong position. As the decades pass, they will pay off their house, potentially trade up to something larger and presumably receive a generous inheritance from their comfortably-off parents.

When the time comes, they will be in a position to help their own children into the property market, and the cycle will repeat itself.

Those whose parents can’t help them are much worse off, and in many cases their children will be too.

There will be exceptions, but many will be condemned to be perpetual renters, unable to get far enough ahead to cobble together a deposit. And when their children are in their 20s and 30s they won’t be in a position to help them either, and the inequality will continue through the generations.

It is another reason why Australia’s housing affordability crisis is such a pressing issue and one that threatens the fabric of our society.