What do you think is the number 1 barrier to home ownership? My student has just finished a small-sample survey in Hong Kong. Interestingly, the HK result disagrees with the latest result released in Australia.
Let’s take a look at the Australia survey first. It is done by Duncan et al.'s (2019) Housing Affordability Report published in the end of May 2019 by the Bankwest Curtin Economic Centre (BCEC). The number 1 barrier to home ownership is “unable to pay the deposit”! It accounts for 56% of the responses. Whereas “unable to pay mortgage payments” only accounts for 25% (Figure 1). In other words, most of the respondents are able to afford the monthly mortgage payment but just unable to save enough deposit (downpayment).
The loan-to-value ratio of mortgages in Australia is currently about 80%, it is not easy to save enough to pay for the 20% deposit (downpayment). With the current ultra-high housing prices (even though it starts to drop a bit), some young people have to rely on parental financial support to pay the deposit. The study found that “12 per cent of the respondents stated they would receive parental help while 22 per cent said they might receive some help. The remaining 66 per cent expected to receive no help at all from their parents to buy a dwelling.” (p.104)
Thus most of the respondents emphasize the importance of the First Home Buyers Scheme and the First Home Owners Super Saver Scheme provided by the Australian Government, it would help to close the deposit gap. However, there is no detail about the two schemes in the report. In case you know more details, please help inform the readers about why they still could not overcome the barrier to ownership problem in Australia?
In contrast, according to my supervisee’s (Law, 2018) dissertation results, the number 1 barrier to home ownership in Hong Kong is the difficulty in paying the monthly mortgage, 73% of the respondents tick this choice as the biggest barrier! It reflects the fact that housing price has been increasing much faster than that of income, resulting in the unaffordability of monthly mortgage payments even though the mortgage rate is unprecedentedly low.
In fact, in the past 15 years, when inflation in HK (CPI) was about 47%, housing price (HPI) has shot up 510%! Housing rent (HRI) has also gone up by 160%, but the median housing income (MHI) has just increased by 86%. (Figure 2)
Moreover, the current loan-to-value ratio of mortgages in Hong Kong is just about 50–60%, buyers have to pay a much higher downpayment (deposit) than that in Australia. Yet, there are only 15% respondents regard “downpayment” as the biggest barrier. It is probably because most of the respondents (65%) think that they could obtain parental financial support for downpayments. It may be due to the cultural difference that results in such a big percentage difference in parental financial support in HK and Australia.
The heavy reliance on parental financial support for mortgage downpayment in Mainland China and Hong Kong has been found in our previous paper on housing pathway (Castro et al., 2016). We found that 29% local Hong Kong students and 47% non-local Mainland China students expect financial support from parents on mortgage downpayment, which are both much higher than the Australian study.
Similar to the Australian’s First Home Buyers Scheme, there is a Home Ownership Scheme (HOS) in Hong Kong, which the Housing Authority provides 30% — 55% discount on housing prices to the eligible first-time buyers. Unfortunately, since the number of HOS housing units is very small (not more than 5000 units per year, when private housing supply is about 20000 units per year), and only households earning less than the income cap would be eligible, it does not help much. Furthermore, first-time buyers are also exempted from some of the stamp duties.
It has become more and more difficult for young people to become homeowners, due to the heavy downpayment and the unaffordable housing price. More and more young couples have to rely on parental financial support or other government support in order to be able to buy their homes. Some of the parents indeed have to borrow money from banks by refinancing their homes. In other words, it requires two mortgages to buy one housing unit. It is not healthy as in case of any housing price plummets, their parents’ home would also be in negative equity. The financial risk of the city as a whole would also be severely increased. My recent article has found that refinancing has accounted for almost 44% of the total amount of mortgage loans, which is unprecedentedly high and risky (Yiu, 2019).
Castro, B., Yiu, C.Y., Shen, J., Liao, K.H., Maing, M.（2016）The Housing Pathways of Young Chinese in Hong Kong, International Journal of Housing Policy, 16(2), 223–242. https://www.tandfonline.com/doi/full/10.1080/14616718.2015.1130605
Duncan, A., James, A. and Rowley, S. (2019) Getting Our House in Order? BCEC Housing Affordability Report 2019, Focus on Western Australia Report Series, №12, Bankwest Curtin Economic Centre, May. https://bcec.edu.au/assets/2019/05/Getting-our-house-in-order-BCEC-Housing-Affordability-Report-2019.pdf
Law, W.H. (2018) Why Housing is Unaffordable in Hong Kong, Undergraduate Dissertation, BA (Hons) Housing Studies, Leeds Beckett University, Nov.
Yiu, C.Y. (2019) HK’s Mortgage Refinancing may cause the next Debt Crisis, Medium, Apr 6. https://medium.com/@edwardyiu/hks-mortgage-refinancing-may-cause-the-next-debt-crisis-7b627621b35d