Is this the end of the Great Australian Dream?

It's a Thursday night at a real estate auction in Sydney, and Georgie Duckworth has her eye firmly on the prize: a one-bedroom unit with a parking space in Bondi Beach. Duckworth is pumped. The 28-year-old account manager has a deposit ready - most of it a gift from her mum, who is here with her tonight along with a group of girlfriends - and a celebratory bottle of champagne on ice. She's been apartment hunting every weekend for the past six months, inspecting up to 40 properties in that time. "I had an emotional connection to this place," she enthuses. "It was the only property I could really see myself living in for a long period of time."

When the auctioneer asks for an opening bid, Duckworth breaks the silence in the room of about 60 people. As more file in, the heat becomes unbearable, but no-one is feeling it more than she is. With a shaking hand, she raises her bidding card and calls out "$390,000". From there, the bidding proceeds in rapid-fire $5000 lots, with Duckworth up against a TV personality who bails out around the $412,000 mark. Duckworth is still in it - her limit is $430,000. But just $4000 shy of her budget, a female bidder to her right pipes up with an offer of $427,000. Sensing her rival's confidence, Duckworth feels her dream home slipping from her grasp. And eventually it does. When the hammer falls at $432,000, in favour of the late bidder, family and friends are forced to console a disappointed Duckworth.

Sadly, her experience is typical. For first homebuyers, the Australian dream of owning a house is fast becoming a nightmare. A combination of high demand and a shortage of properties has driven prices sky-high, meaning young people can't get a foot on the property ladder. They're either stranded at home with their parents or stuck in rental accommodation, paying off someone else's mortgage. "It's so frustrating," says event co-ordinator Bree Johnston, 28, who was also at the auction for that prized Bondi unit. "I'm sick of renting; I wanted to have my own place."

At times, it seems it's all anyone can talk about - the perennial dinner-party conversation. But in their frenzy to secure a property, some would-be buyers are taking extraordinary risks. Banks are offering 100 per cent home loans, encouraging them to overextend themselves financially. Interest-rate increases - such as the three we had last year - are causing people to default on loans, leading to a 10 per cent rise in repossessions in Sydney, for example, in the past two years.

In the worst cases, parents, who have acted as guarantor on their children's loans, have lost their own homes. "You don't want to work your whole life then lose your home over a poorly understood decision," advises solicitor Katherine Lane from the NSW Consumer Credit Legal Centre, who adds that calls from distressed parents are increasing. "I've seen a number of cases where they've worked their entire lives for a house and they have lost it."

The figures on home ownership make for depressing reading. In 1996, 41 per cent of Australians owned their homes outright and 26 per cent were paying off mortgages; a decade later, those figures are 33 per cent and 32 per cent respectively. Home-loan repayments eat up almost one-third of the average household income - and that figure is rising.

"House prices [in Australia] are higher than almost every other OECD* country, and affordability is the worst on record," confirms Professor Julian Disney, chair of the National Affordable Housing Summit, a coalition of housing and community groups.

In Sydney, the median price for a unit is $380,500, while for a house, it's $558,000. Perth is the second most-expensive city to buy in - the median house price there is $494,500. In Queensland and Western Australia, the resources boom has driven up prices, reveals John Moore, president of the Property Investors Association of Australia. John Lindeman, spokesperson for property analysts Residex, blames our increasing population, warning, "What we're finding is the shortage of housing is increasing every year, and it's only going to get worse."

Meanwhile, the federal government has slashed public housing funding by six per cent in the past seven years, creating a hothouse atmosphere in the private rental market, forcing rents up and pushing tenants into the property market. The number of households spending more than 30 per cent of their income on rent - considered "rental stress" - has also soared, according to the Australian Bureau of Statistics's 2006 Census.

"It used to take four times the annual income to be able to afford to buy and now it's seven times," says David Imber, spokesperson for the newly formed lobby group Australians for Affordable Housing, which represents more than 30 community organisations. "The combination of high house prices and high rent is really making it difficult for low- and middle-income earners to make ends meet. They're either moving further and further out [of urban centres], which means they are subsidising their housing costs by paying more for petrol, or they're simply going without other essentials; at the very lowest end that's things like food and electricity."

Imber adds that the crisis is bigger than the individuals it's most affecting. "Obviously, it's great if you're able to save money, but this problem goes way beyond personal budgets. It really does raise the question: do we have a fair society if people aren't able to afford one of life's basics, which is housing?"

Newspaper reports of couples struggling to buy homes have sent politicians scrambling for answers. Federal Opposition Leader Kevin Rudd initiated a national summit on the issue, and has proposed a superannuation-style savings scheme for first homebuyers - an idea welcomed by housing groups. Another suggestion to increase the $7000 first homebuyer grant was rejected by federal Treasurer Peter Costello, who argued it would inflate the property market further. Instead, he maintains that state governments should release more land on the fringes of large cities, which he calls "classic first homebuyer territory".

But the potential first homebuyers we interviewed don't want to move away from the suburbs they've grown to love. While Duckworth and Johnston are struggling to afford to buy in Bondi, the thought of moving away from their friends fills them with dread.

"I was floored by the final price of the Bondi unit as I expected it to go for about $400,000," admits Johnston. "It made me think I might need to reassess and buy in a less expensive area, a bit further out. [But] one of my key things is not having to change my lifestyle too much. I'm single and I don't want to be single forever."

Stuck in the impasse between what they want and what they can afford, Duckworth and Johnston relied on their parents to help them out with a deposit. "I absolutely would not have been able to do it without Mum's help," stresses Duckworth.

Even couples in their 30s - who traditionally would have been ensconced in their own home by now - are forced to rely on Mum and Dad. Kim Sawert, who also inspected the Bondi unit, but ended up buying a larger place nearby, says she couldn't have contemplated buying a home without a generous inheritance from husband Brian's father. But the $200,000 deposit she put towards the $515,000 cost of her property won't make paying off her mortgage any easier - even on the average wage Sawert takes home as a television producer.

"I already feel I'm stretching myself at the moment," the 33-year-old confesses. "I'm trying to rein in my spending a bit." Despite the sacrifices, Sawert acknowledges she's one of the lucky ones: "My single friends are finding it very tough [to buy] in Sydney."

Previous generations just didn't face this issue, remarks Imber. "It never used to be the case that you had to rely on your parents [to buy a house]." Yet they are now feeling enormous pressure to help their kids. "We know that the group in the community who is most concerned about this issue are parents who are worried about their children," he continues. "Some because they can't help them; some because it's going to cause them [financial] stress if they do."

Earlier this year, the media reported on Queensland couple John Hartfiel and his wife, Marie, who paid a terrible price for trying to help their daughter, Janelle, when she fell behind on her mortgage repayments.

Although he suffered from a debilitating kidney disease, John and his wife made the brave decision to refinance their own home to cover Janelle's arrears. She was supposed to rent back the house from them, thus paying off the loan. She didn't, and now her parents face losing their home.

Lane believes more parents will find themselves in the Hartfiels' situation as the housing crisis continues to bite. Bank products encouraging familial property agreements are exacerbating the problem, she maintains. "If you're going into this type of agreement, everyone has to understand what the escape clause is, and what are you going to do if you can't afford to pay? Putting your house up is the one thing you should avoid. We need to strike a balance between looking after ourselves and our children."

Determined to avoid financial problems, personal assistant Maria Adzersen says she and her partner, Paul, are prepared to settle for a less-than-perfect property that won't leave them vulnerable to the vagaries of interest rates. They're willing to buy an older place that needs renovating. "I'd like to buy and do it up, and sell again," she adds.

Adzersen's parents are helping her by giving her a lump sum; they've agreed to match the $20,000 she has saved to put towards the loan. Even though she's only 21, Adzersen is eager to break into the market before the next round of predicted price rises. "I guess it's just common sense that property is a good investment," she states.

As the winning bidder for the Bondi unit, Leigh Neal, a 48-year-old business owner, knows the rewards that property bestows on the savvy investor. She bought her first house with a partner 16 years ago. It more than doubled in value, increasing her purchasing power, and years of buying and selling have now paid off financially.

Still, Neal paid more than she would have liked for this particular place. "I was hoping I would pay $420,000," she admits. "[But] I wasn't shocked. I know that property in Bondi has gone up between 10 and 15 per cent because I've been watching it for a year." Neal also sympathises with first homebuyers. "I think it's very, very hard as a single person to get into the property market unless you've got some form of family support or partner support. Personally, I would advise that if they've got a good friend to draw up a contract ... and put their money together."

Property analysts at Residex agree that property is still the best long-term investment option. "Get into the market as soon as possible. That's the main tip I could give," affirms spokesperson John Lindeman.

Andre Frack, principal of real estate agents Richardson & Wrench Bondi Beach and Bondi Junction, emphasises there will never be a "good" time to buy. "You've got to get into the market somehow. Once you're in, hopefully you'll stay in."

And, with rents increasing, buying may prove to be a better financial option for most people. "In many cases, buyers are purchasing and find their mortgage may be a similar amount as to what it was costing them in rent," explains Frack. First homebuyers, in particular, are flocking towards properties below the $500,000 mark, of which the Bondi unit was a perfect example. Frack offers this advice to potential buyers: "Choose your area very carefully; look at the rental returns and proximity to transport. Parking is always valuable, as is some sort of outdoor area. You should also consider the resale value."

But after the stress of her first auction experience, Duckworth has decided to take a break from househunting for a while. "I'm emotionally exhausted," she sighs. "I'm going to give house buying a rest until I come back from travelling next year."

What we've learnt
Some of the bidders at the Bondi auction share their househunting tips

Name: Georgie Duckworth, 28
Occupation: Account manager
Buying philosophy: "I'll keep my eye out, but I won't look so actively. It's exhausting."
Advice to others: Enlist the professionals. "Get a good mortgage broker and a good solicitor to go through the contracts thoroughly. If you've got any contacts in real estate, use them."

Name: Bree Johnston, 28
Occupation: Event coordinator
Buying philosophy: "Rent is dead money."
Advice to others: Don't get emotional. "Keep your expectations in check and be realistic - try not to allow your heart to overrule your head."

Name: Maria Adzersen, 21
Occupation: Personal assistant
Buying philosophy: "I'd invest in property over anything else."
Advice to others: Do your research. "I've been reading a lot of articles [about the housing market] and I think now is the best time to buy."

Name: Kim Sawert, 33
Occupation: Television producer
Buying philosophy: "I'm a safe investor; I don't think property ever really loses its value."
Advice to others: Sacrifices now equal gains later. "I've just been working hard and trying to save as much money as I can. I'm going to try to pay my mortgage off as soon as possible."

Name: Leigh Neal, 48
Occupation: Business owner
Buying philosophy: "I personally think it's a good investment if you're prepared to stick with it for a good amount of time."
Advice to others: Pool your resources. "You've got more buying power if there's two of you. If you're not in a relationship, draw up a contract with a friend you trust."

Want to buy?
Here are four websites to help you get ahead...

• Compare home loans at www.residex.com.au.
• Get property news and discover the hot spots at www.residex.com.au.
• For updates on lobby group Australians for Affordable Housing, visit www.affordablehousing.net.au.
• For general loan information, visit www.homeloanadvicecentre.com.au.

An International Problem Australia is the least-affordable country worldwide to buy a home, according to the 2007 Demographia International Housing Affordability Survey. On a country-by-country basis, Sydney is the second least-affordable city. 1 Los Angeles (Orange County), US 2 Sydney, Australia 3 London, UK 4 Vancouver, Canada 5 Auckland, New Zealand