Fast forward to the present and the share of first home buyers in Australia is even smaller than in 2003 - in August they made up just one in 15 borrowers in NSW, and one in eight borrowers in Victoria. And yet housing affordability is hardly registering in political debate. It should be. First home buyers are giving up at a time when conditions are relatively favourable for them. Interest rates are at historic lows and mortgage repayments as a proportion of average disposable incomes are lower now than for most of the past 15 years. Some economists say these are the best home buying conditions in years. So what's going on? Some first-time buyers are being outbid by the rush of investors who have jumped into housing on the hope of quick capital gains.

But I think many are baulking at the deposit hurdle. That hurdle has been raised considerably because house prices have risen faster than incomes over time - from 2.5 times the average disposable household income in 1985 to about 4.5 times last year, the Reserve Bank estimates. Low interest rates have allowed borrowers to service the bigger loans made necessary by those high price rises. But low borrowing costs have not helped make saving for a deposit any easier. The jump in house prices relative to income means it's harder than ever to scrape together a home deposit big enough to allow manageable mortgage repayments. Research by economist Judy Yates, an associate professor at Sydney University, shows that for most of the 1980s, home buyers needed to have saved about the equivalent of a full year's average income to secure a loan they could comfortably repay that was still large enough to purchase a median-priced dwelling. By 2010, the corresponding deposit size had increased to roughly four times average annual income.

The latest surge in Sydney house prices - 13.2 per cent so far this year according to RP Data-Rismark - has lifted the deposit hurdle further. Arab Bank Australia analyst David Scutt estimates that property price gains in this year alone have pushed the standard 20 per cent deposit on the average Sydney house up by nearly $12,700. That's enough to dampen the resolve of any saver. No doubt the sheer mortgage size faced by first home buyers has also caused some to give up. Even if a lender tells a young couple they can borrow half a million dollars, many just don't want to do it. Home ownership rates nationally have been in decline since the mid-1990s for all but the oldest households. The largest fall is among households in the 25-44 age bracket. The latest Bureau of Statistics data on home ownership shows the share of families that rent is now equivalent to those who own a home outright, as a growing number of young people appear to be giving up on the dream of buying a house. The decline in home ownership rates is most pronounced in Sydney, where the share of households owning their home outright has slumped by more than 13 percentage points since 1995-96. Almost 35 per cent of the city's households are now renting. It could be that the latest crop of potential home buyers has a different outlook on property ownership and would prefer to rent a property in desirable locations rather than taking on a mortgage. But the falling home ownership rate among younger age groups threatens to create some tricky political and social challenges. Those who never own a home miss out on the massive tax benefits governments give to owner occupiers - about $35 billion a year, a recent Grattan Institute report shows.

They also miss out on the $6.8 billion in tax benefits that flow to property investors annually. These policies will become harder to justify if the proportion of renters keeps growing. Housing is also Australia's main source of household wealth accumulation, so those who do not own property will miss out on those gains. Yates warns that disparities between home owners and non-home owners will eventually create a big, intergenerational wealth gap. It is time housing affordability made its way back near the top of the national policy agenda.