Call to close the deposit gap

A number of submissions to the Senate Standing Committee on Economics inquiry into home ownership agree that the main reason fewer young people are buying houses is the widening deposit gap and they call for governments to direct their effort to closing that gap.

The deposit gap is the difference between a household's savings and the minimum deposit required to purchase a dwelling.

The Reserve Bank pointed out that home buyers' loan servicing requirements have not changed much over time and are below recent peaks in 1990 and 2009.

"Housing affordability, measured as the share of average household income required to service a loan on a median dwelling price, has continued to cycle between 20 and 30 per cent."

What has changed is that the rise in house prices has increased the size of the deposit. The RBA said lower deposit requirements have probably only partially offset this increase.

The Bankwest Curtin Economics Centre's submission includes details of a survey of young adults living in shared houses or with their parents. It found that the deposit gap for this group was around A$30,000.

For a person earning $70,000 a year the gap represents a savings requirement of ten per cent of their net income saved over five years. "That is a significant barrier," the BECB submission said.

The BECB said stamp duty exacerbated the problem, increasing the upfront lump sum cost of a home. It recommended that stamp duties be phased out and replaced by annual land tax (which applies only to investors at the moment).

The Australian Bankers Association submission also took aim at stamp duty, describing it as a barrier to entry for new home owners, with the stamp duty requirement reducing the size of the available deposit.

A number of submissions called for the reintroduction of first home saver accounts.

The Customer Owned Banking Association submission said: "COBA believes there is a role for government to play in assisting first-home buyers build the deposits they need to get their foot on the property ladder. A better-targeted FHSA could deliver significant benefits."

COBA also called for more equitable (lower) tax treatment of savings.

The BECB submission said: "The loss of first home saver accounts was disappointing as this gave potential homeowners an attractive savings option. A modified scheme should be introduced to encourage savings.

"Schemes structured to help home buyers overcome the deposit gap are necessary in an environment where dwelling prices are dislocated from incomes."