Suburbs that will soon be affordable for home buyers – but not for long

More than 100 first home buyer suburbs could slip out of reach by the summer if property values continue to rise at the current rate, new modelling shows.

Rising values could begin to eat into the benefit of an expanded government scheme to help home buyers that begins in October.

From next month, first home buyers can purchase a property on a low 5 per cent deposit using the First Home Guarantee Scheme, and avoid lenders’ mortgage insurance, up to a property price cap of $1.5 million in Sydney, $950,000 in Melbourne, $1 million in Brisbane or $850,000 in Perth.

This compares to more modest limits available to buyers under the scheme now, of $900,000 in Sydney, $800,000 in Melbourne, $700,000 in Brisbane and $600,000 in Perth.

Now, about a third of house and unit markets have a median value below the scheme’s limits. That will rise to 63.1 per cent of analysed suburbs once the expanded caps begin, Cotality research shows.

But if values keep rising at the rate that they have over the past three months, about 100 suburbs that will soon become accessible due to the higher price caps, will push above the new price caps three months from now.

For example, Bankstown in Sydney’s west has a median house value of $1,488,000, based on August data, and will come under the price caps from the start of October.

Bankstown values rose 3.8 per cent over the past three months. If it keeps rising at the same pace, it would have a median above $1,544,000 by November and the typical house would become ineligible for the scheme.

Melbourne’s Springvale could come within reach in October as it has a median house value of $925,000 and rose 3.7 per cent in the three months to August. If that pace of growth continues, by November the typical house would cost almost $10,000 more than the scheme’s price cap.

Cotality economist Kaytlin Ezzy emphasised that buyers could still consider below-median homes in the same area.

But she said that as it is a demand-driven scheme it will put some upward pressure on values. As prices go up, the median home in more and more suburbs will fall out of eligibility.

“There is the view that this scheme will push values higher and obviously these caps will need to be reviewed periodically as they previously have been to stay in line with the market, but these increases do just essentially bring it in line with the median house value in a lot of these regions,” she said.

She said buyers will have more choice overall under the expanded version of the scheme compared to now.

“[It] does mean more first home buyers will be able to take advantage, and have more choice as to where they want to purchase … They don’t have to be as restricted to either units, or those really outer mortgage belt or regional markets.”

She also cautioned that not every first buyer can purchase at the scheme’s maximum price cap, because they must still get a home loan that a bank assesses is not too big for the buyer to repay.

The price cap increases vary by location. Sydney buyers who can take full advantage of the scheme could buy the median house in almost half of Sydney suburbs from October, up from 8.5 per cent now, the research found.

Melbourne buyers at their limit could consider the median house in more than two-fifths of Melbourne suburbs, up from 23.4 per cent now.

Brisbane buyers could choose of almost 45 per cent of suburbs, up from one in ten now. Perth buyers will have their choice of nearly two in five suburbs, up from less than 1 per cent now.

Unit buyers will have more choice, up to the median unit value in more than 90 per cent of suburbs in every capital city except Hobart.

Independent economist Saul Eslake said the typical first home buyer chooses a more modest home than the median property.

He thought it would be more appropriate for the price caps to be set lower than the median home, such as a percentage of the median home for each region. But he said buyers are still constrained by how much banks will lend.

But he thought the scheme will put upward pressure on house prices and gives the government another incentive to resist falls in house prices, since it is guaranteeing loans.

“What it should be doing is resisting the temptation to prevent house prices falling when the market wants them to fall,” he said. “It’s hard to think of anything that would be more helpful to those that have been locked out of the housing market.

“The most effective antidote to high prices is lower prices.”