Australia is often referred to as “the lucky country”.
It’s difficult to dispute that we are very lucky. We’re a developed economy with significant welfare mechanisms, strong financial infrastructure, and low unemployment. We are pretty fortunate, but I often wonder if our “luck” is fairly distributed?
In Australia, over 116,000 people experience homelessness every night. A risk we face is the further widening of the gap between those who can and cannot access those systems that promote financial stability. If we want to be truly “lucky”, we need to do more to encourage financial inclusion. And the responsibility for this needs to be distributed across the public and private sectors and our education system.
The challenges faced by Australians
Having worked in banking for 20 years, I have seen the strength of Australia’s banking infrastructure – and the regulatory regime that underpins it, but still, we are seeing growing inequality in our society. Our property market is a prime example – it’s great if you’re in. It’s daunting if you’re not.
Access to finance is paramount to putting a roof over your head, let alone a foot in the door. Unsurprisingly, the PEXA Property and Mortgage Insights Report found that 77.5 per cent of residential property transactions along Australia’s east coast were funded by a loan in FY21.
And that foot in the door is a real challenge.
From a mortgage perspective, we know that lenders require around a 20 per cent deposit to avoid extra fees and insurance, with ten per cent regarded as the bare minimum for mainstream lenders. In the context of the median house price in NSW rising to $1 million earlier this year, you’ll need to have a spare $100,000 in cash lying around – and that’s the minimum. Compare this with Australia’s median personal income of $49,805 (ABS, 2017-18), and a paradox of the lucky country begins to glare.
We have a strong banking infrastructure which has seen Australia survive economic shocks without catastrophe, but the regulatory framework that underpins that strength presents a paradox: young or less wealthy Australians are simply priced out of accessing the stability and wealth creation that comes with home ownership. How do we even begin to bridge that gap?
Steps to delivering change
There are initiatives such as the Family Home Guarantee, which allows single parents with dependants the opportunity to build or purchase a home with just a two per cent deposit, or the First Home Loan Deposit Scheme, which allows first home buyers to purchase or build a home with a five per cent deposit, with a short-term guarantee from the Australian Government and no Lenders Mortgage Insurance.
These policies – combined with today’s historically low interest rates – go a long way to make buying a home more accessible, but more can be done. Just 10,000 places are available for each of these initiatives this financial year, and a further 10,000 places over the next four financial years.
Increasing capacity of these initiatives would promote greater financial inclusion via property ownership. While government can provide financial support, help educate our society about the effects and prevalence of financial hardship and highlighting avenues of support such as like low-cost loans, the private sector and our education system must play a role to help prepare people for the responsibility of saving and getting ready to service a loan.
Companies and the education system can work with employees and students to offer information and opt-in training on the best ways to budget and save, or even provide high-level programs on the type of information a lender is likely to ask for. It sounds basic to many of us, but if employees or students are members of communities that are traditionally marginalised or disadvantaged, then this information can make the world of difference.
Bridging the gap so that more people have the opportunity to access finance is everyone’s responsibility so that we can help to minimise financial stress in our society. We all know that having a roof over your head is a fundamental human need – we need to ensure we’re providing people the tools to do so.