Cities with lowest deposit thresholds – Dr Nicola Powell

Australia’s property markets are changing, and in most capital cities the long path to purchase has become that little bit shorter.  That is  great news for first-home buyers faced with the difficult financial hurdle of saving for a deposit. Dr Nicola Powell from Domain identifies the cities and areas offering the lowest entry-price and quickest path to purchase.
Kevin:   Australia’s property markets are changing and in most capital cities, the long path to purchase has become a little bit shorter. It’s news that’s going to be welcomed by would be first home buyers faced with a difficult financial hurdle of saving a lump sum deposit amidst rising living costs and low wages growth. With buyer urgency having largely dissipated in most cities, perspective first home buyers can now focus on building a savings plan to gain entry into previously competitive markets.
Kevin:   The Domain First Home Buyer’s Report identifies the cities and areas that offer the lowest entry point. And joining me to talk about the report, Dr. Nicola Powell, who is the senior research analyst from Domain. Nicola, if you don’t mind me calling you Nicola, happy to call your doctor, but Nicola sounds better.
Nicola:  Nicola is fine.
Kevin:   Good on you, thank you. Nicola, whereabouts, well firstly tell me how did you go about doing the research? How was it conducted?
Nicola:  Yes, certainly. So what we did is we focused on the entry level prices, which we deemed as the 26th percentile. And if you look at that entry level price, it’s really what’s in the realm of what a first time buyer will be looking at. And then we actually calculated the time to save.
Nicola:  So we actually focused on, it was a couple, they were aged between 25 and 35 years old in each capital city. And we used those estimates of income from the ABS. We factored in that wage price growth and we assumed that they were saving 20% of their post tax income. And so we calculated how long it would take to save the 20% deposit in all of our capital cities. And we also drilled down into some of those smaller areas, so SA4 areas and also SA3 areas to see where the quickest path to home ownership was.
Kevin:   Yeah, without a surprise, of course Sydney being the worst, so that was where the most time was needed?
Nicola:  Absolutely. So Sydney without doubt remains the most expensive of all of our capital cities. And as a result, has the longest path to purchase. But I will say for Sydney, we had seen affordability improve the most for entry level buyers when compared to any other capital city. We saw that it took six years, two months to save for an entry level house in Sydney, five years, four months to say for an entry level unit.
Nicola:  But when you have a look at the difference between this year and last year, we’ve seen five months shaved off of that journey time. And that had been because we are actually now seeing those entry level prices soften. So it is a bit of good news for those in Sydney looking to get on to the property ladder.
Kevin:   Where in Australia do you need the least time to save that deposit?
Nicola:  So in terms of the least time, it really is Darwin, which is the most affordable. But also Perth. I mean, we know that Perth’s had a number of years of challenging conditions that I think this is welcomed news for first time buyers and we continue to see that pathway to purchase fall in Perth. It’s only three years, six months to save a deposit for a house and for a unit two years and four months.
Nicola:  What was interesting about Perth, actually one of the quickest journey times was actually Perth inner CBD area. The journey to saving for a unit was much quicker than compared to any other kind of SA4, SA3 area in our greater capital areas.
Kevin:   I think everyone in Australia has been watching with great interest the development in Hobart in recent years, just the growth there. How has that reflected in the time required to buy?
Nicola:  Hobart suffered the most really in terms of affordability because it has declined. The journey time to save for a house and a unit increased increased by six months. Hobart may have the lowest entry house prices when you, and unit prices, when you compare to some of the other capital cities. But the steam that Tasmania had and Hobart has is the lowest wages. And so what we’re seeing there, entry level prices are really escalating at a greater pace than what we have seen wages growth. And the fact that they’re having to save six months longer really shows that that savings goalposts continually gets pushed further and further away for anybody really fighting to try and get on that Hobart property ladder.
Kevin:   What about Adelaide? How did that fare?
Nicola:  So Adelaide was kind of middle of the road in affordability. It was one of the more affordable areas, cities to purchase. So three years, 11 months to say for an entry house and for a unit, two years and 10 months. Now it was a bit of a fit reverse in terms of the performance of houses and units. Houses we did see that journey time increased by a month where units declined by one month.
Nicola:  But in terms of areas, it’s the north of Adelaide that really has this pocket of affordability for first time buyers. I think when you compare it to some of the other capital cities, you can purchase a house in reasonable distance to the CBD at a fairly short journey time to save that 20% deposit. So for me Adelaide was actually pretty affordable and was one of the better cities when you’re comparing them all.
Kevin:   Nicola, what about the region? So moving just outside of the capital cities themselves, were there any surprises there?
Nicola:  So in terms of regions, we did focus on the greater capital areas. But when you say, for example, when you look at greater Sydney when we’re trying to pick out some of those more affordable areas, it really is a central coast, which falls as part of that greater Sydney area and the outer southwest and outer west that had the most affordable journey times. It’s really the logic that we see with big cities is the further you get to that urban fringe, the cheap it got, it has become to get onto the property ladder.
Nicola:  And maybe when you look towards Sydney, central coast has been a magnet for first home buyers, and you can understand why. It’s such a shorter journey time to save. While the option in the central coast, four years, six months to purchase a house studies is significantly shorter than the overall for Sydney, which is six years and two months.
Kevin:   Nicola, thank you so much for your time. I’ve been talking to Dr. Nicola Powell, who was the senior research analyst at Domain. Thanks for that report.
Nicola:  Thank you.

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