First home buyers: home deposit or lifestyle

When I was browsing Facebook today I noticed there was an article from SMH. The title is ‘We’re conning young people’: The double whammy trapping first home buyers (URL: https://www.smh.com.au/property/news/we-re-conning-young-people-the-double-whammy-trapping-first-home-buyers-20220114-p59oaa.html).

Basically the article says that first home buyers “are facing a double whammy of rising rents and soaring house prices, combining to make it harder to get a foot on the property ladder.” I totally agree with this statement.

However when I read the example in the article I thought “hang on, something is not right”.

This is the example they quoted in the article to support the argument that first home buyers “are facing a double whammy of rising rents and soaring house prices, combining to make it harder to get a foot on the property ladder”.

Sarah King was saving hard to buy a home and then her rent shot up by about $100 a week.
“My husband and I had a really serious savings plan,” the 40-year-old said. “We’ve had to reduce it the last few months since we’ve moved, because of increasing costs.”
Ms King and her husband, 43, managed to pay a deposit on an off-the-plan home last month but are still saving towards the stamp duty bill which is due when it settles next year.
They were given notice to leave their Potts Point apartment mid-last year and faced a competitive market, eventually securing a Bondi rental for about $100 more a week.

To me this is not an example where she cannot save quickly enough for the stamp duty. This is really about choosing between saving for home deposit and enjoying a lifestyle near the beach.

I did a quick search on Domain. Currently there are 13 two bedrooms apartments with parking for rent. The cheapest one is $750 per week. In the same article it says the median rental asking price for units increased only $20 a week in the last 12 months. Let’s assume Ms King rented the cheapest apartment in Potts Point mid-last year. I would say $700 is a very reasonable price. So we kind of know she would have to pay at least $800 per week for the new Bondi rental.

I am not very familiar with other suburbs but I know Wolli Creek very while as I used to live there. There are currently 33 two bedrooms apartments with parking for rent in Wolli Creek if we do a quick search on Domain. The cheapest one is $500 per week.

Basically if Ms King is willing to give up the beach lifestyle she can easily save $300 per week. This means in a year she can save $15,600.

As you may know if a buyer signs a contract before construction begins, stamp duty will only apply to the land value, not the finished house. I would think Mr King will only need to pay the stamp duty for the land value as in the article it says “Ms King and her husband, 43, managed to pay a deposit on an off-the-plan home last month”.

I don’t know the land value of their off-the-plan purchase. Let’s assume it is $1.5m. The stamp duty will be $67,990. Based on the $15,600 saving per year if they rent in Wolli Creek instead of Bondi they can save enough for the stamp duty in less than 5 years. If the land value is $1m the stamp duty will be $40,490 which means they only need less than 3 years to save enough for the stamp duty.

As one can see this is not really about that the rising rents prevent first home buyers from saving quick enough for their deposit. I believe it is more about how the first home buyers can balance saving for home deposit and enjoying a lifestyle they like.

Leave a Reply