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The five charts that prove there is a housing affordability crisis

Sydney is about to lose another young couple to the spiralling cost of housing.

Annandale residents Meg and Tim McCloud, both 28, have given up on the idea of ever buying in Sydney.

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Housing affordability - the options explained

Buying a house is increasingly out of reach for young Australians - Eryk Bagshaw explains the options being considered.

"A four-bedroom house in Dubbo or Mudgee is $450,000, not a million dollars," says Meg, who grew up in Dubbo and had little trouble convincing her husband Tim to depart Sydney in a few years when they finish studies.

So, are they leaving by choice or compulsion? Too many smashed avocados, or casualties of very real economic forces which have made it much harder for younger generations to buy than their parents?

"It comes down to the choices we're making," Ms McCloud says. "When we have spare time and money, it's spent with family and friends and going away on holidays. I can't really picture myself not doing that ... [so] the desire to own property in Sydney is not very alluring to us."

There's no shortage of pundits ready to blame young people for their woes. Too many meals out, too many holidays and not enough saving.

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But the hurdle to home ownership is much higher for this generation than previous, according to John Daley, the chief executive of the Melbourne-based Grattan Institute, which has conducted two major studies of Australian housing since 2013 and has another one in the pipeline.

There is "no question" that Australia is in the grips of a housing affordability crisis, says Daley.

Home ownership on the slide

Australian home ownership has dipped to its lowest level since the aftermath of World War II, when government focus on supply on the urban fringes unleashed a wave of home ownership.

Proof of the current crisis, according to Daley, is the falling rate of home ownership among young – and some not so young – households.

"The crisis is that younger households, particularly those on lower incomes, used to be able to buy houses in Australia and now they can't," he said.

"How do we know they can't? Because the numbers show they don't."

There's been a steady decline in home ownership among households aged under-45 years since the early 1990s and the trend has gathered pace since the early 2000s.

While delaying marriage and later household formation might explain some of that decline, Daley says housing affordability is the key driver.

"When your home ownerships rates are even falling among 45 to 54-year-olds there is clearly something going on," he said.

A recent report by economist Saul Eslake for the Institute of Superannuation Trustees of Australia highlighted another "disturbing" aspect of the housing crisis.

Even those who manage to get on the property ladder have a lesser grip than they did in previous generations.

According to Census and other survey data, the proportion of homeowners who own their homes "outright" – without a mortgage – has declined from a peak of 61.7 per cent in 1996 to 46.7 per cent in 2013-14.

"In other words, compared to 15 years ago when almost three out of five home owners owned their home outright, home owners with a mortgage are now in the majority," says Mr Eslake.

As a result, many property owners will be forced to use their superannuation to retire their debt, leaving them poorer in retirement.

The deposit hurdle

Mr Daley says the key constraint on housing affordability is the "deposit hurdle" – how long it takes to save enough to put down a deposit.

According to a 2016 report by Bankwest, the First Time Buyers Deposit Report, Sydney's sky-high property prices give it the biggest deposit hurdle in the country.

"Sydney is still the toughest market for first time buyers, with couples needing to save for an average of 8.4 years in order to put down the $214,600 needed for a 20 per cent deposit on their first house (up from 7.9 years in 2015)," the report found.

The combination of rising house prices, low wages growth and a low rate of interest on savings has made it much harder to accumulate a conventional home deposit.

Reserve Bank data confirms the deposit hurdle is the highest it has been in at least a quarter of a century. A 20 per cent deposit on a median priced Australian home is now worth an entire year of the average household's disposable income – up from just half a year's income in the 1990s.

Even opponents of the idea of an affordability crisis acknowledge this point.

"It's harder to get a deposit. There's no question," says Stephen Koukoulas, managing director of Market Economics.

"But once you get your foot in the door, you've probably got a massive mortgage, but your debt servicing is about the same because interest rates are very, very low."

Record low interest rates

Mr Koukoulas, who last year penned an article telling millennials to "stop moaning", points to a graph on mortgage repayments contained in a 2015 submission by the Reserve Bank to an inquiry into housing affordability.

He says it is evidence that repayments on a new loan today are "not much" higher than their average of the past four decades.

Repayments are well below their peaks in 1990 and 2008 when interest rates soared.

"It used to be high interest rates that made repayments go up, now it's high property prices," says Koukoulas.

But interest rates can't stay at record low rates indefinitely, he concedes.

"You do assume that over the course of the 25-year loan you would assume they would be substantially higher than they are now."

What worries Koukoulas is that many young people are showing "capitulative behaviour" when it comes to buying a home.

"Because I'll never be able to afford a deposit or loan, I'm going to spend the money. Stuff it. I'll wait for my parents or aunt on the lower north shore to die and then I'll buy. If I manage to save $5000 or $10,000 I'm going to go on a nice holiday."

"I think there could be a conscious decision to just say stuff it, I'm just going to spend my money and enjoy myself and wait for the inheritance. It could be subliminal."

Mr Eslake says there is anecdotal evidence of millennials placing less importance on becoming home-owners and more importance on being close to jobs, entertainment and pursuing travel.

But they are not alone to blame for their woes, he stresses: "Nonetheless, it seems unlikely that these demographic and social factors, on their own, can fully explain the declines in home ownership rates noted earlier, and especially the declines in home ownership rates among 'middle-aged' households (so-called generations X and Y)."

Mr Daley utterly rejects the claim that younger people are not as interested in home ownership as previous generations.

"It's not because they don't want to buy houses – all the survey evidence suggests that the aspirations for home ownership as high as they have ever been," he said.

More smashed avo, but fewer ciggies and booze

So where is the evidence that young people are really more irresponsible with their money than past generations?

The longest continuous survey of the spending habits of Australians comes from the national accounts and a measure of "household final consumption expenditure" which goes back to 1959.

It gives a snapshot in time of the spending habits of the average Australian household.

In 1960, by far the biggest component of household spending was on food, which made up about 20¢ of every dollar spent.

Housing costs soaked up just 10¢ in every dollar spent.

Today, the situation is reversed, with housing costs soaking up more than 20¢ in the dollar spent, and cheaper food just 10¢.

And it turns out every generation has its indulgences.

Households today are also forced to spend more on education and health, but far less on cars, clothes and household goods, thanks to cheap imports.

Interestingly, the share of spending that goes to cafes and hotels has fallen from $9 for every $100 spent in 1960, to just $7 in every $100 spent today.

And it turns out every generation has its indulgences.

The average household in Australia in 1966 spent $4 in every $100 on cigarettes and tobacco and another $2.50 on alcohol.

Households today spend just $1.70 in every $100 on cigarettes and another $1.70 on alcohol.

Where to from here?

Tim McCloud may have given up on Sydney, but he's still keen to make life better for others like him and volunteers for advocacy group Sydney Alliance's affordable housing campaign.

"We want a system that's set up for people who are living in their own homes, not for people who make money off those just wanting some financial security," he said.

"But it seems like we've got a government that's pretty uninterested in helping young couples."

with additional reporting by Pallavi Singhal