Buying your First Home – Petro Pirozek Eco2

In recent years, Melbourne experienced a boom in the Real Estate industry with an increased demand for houses resulting in increased prices, linking to the most central economic theory of supply and demand. A Traditional Market Economy says that prices will keep going up if people continue to buy and compete for them which was taken on board by intelligent real estate investors and sellers, with the perfect time to sell. For first home buyers, this meant a difficult entry into a competitive industry, highlighted by a reduction in home ownership in young adults.

The stakeholders in the real estate industry are the homeowners and the home buyers. An increase is price is a positive for homeowners, as the value of their property has gone up. In particular this effects real estate investors who rely on price increases to gain capital. Home buyers are in a more difficult situation, as areas of interest are where prices increase most steeply and first. The government encourages newer home buyers to spread into regional Victoria, in places such as Point Cook where new houses are constantly being built. However, as a consumer, you may be forced to take second best as areas are out of budget or areas that you can buy houses is inconvenient or not ideal.

Why has this situation arisen? Why are house prices are so high now? There are no one answer to these questions. One fact is that Melbourne’s population growing with 4 consecutive years of 100,000 people or more are becoming Melbourne residents who need places to stay. Another reason is that house prices have accelerated faster than wages have. This has increased the Price to Income ratio (PIR) from 1980 where is was 3 to a PIR of 8 in 2020. This difference in affordability shows why younger home buyers nowadays have a harder time saving for a house than essentially one generation ago.

Mortgages are loans given out by banks and companies to make buying a home easier instead of buying it straight up front. These principal amounts are payed back over the course of decades along with the interest rate offered and extra fees if applicable. It is the most common way to find the money in order to buy a house, but also comes with dreaded repayments and debt for years to come.

To provide support for first home buyers, the Federal Government offers a first home owner grant. When successfully applied for, it provides $10,000 for the purchase of a house, and $20,000 for new homes built in regional Victoria. It also has to be a house with a value of equal or lesser value of $750,000. This means that the government will provide around 1.3-2.5% of the total price of a house.

Do you think the government is doing enough to provide first home buyers with enough resources or adequate areas of development? Would you prefer the spread of Victorian housing or an increase in city apartments?