It’s time for something to be done on housing affordability

It’s time for something to be done on housing affordability

By Catherine Cashmore
Tuesday, 18 October 2011

It’s somewhat heartening to see the Wall Street protests gathering momentum across major Western nations.  Heartening because ordinary people (99% of us) are starting to realise we do have a voice in a world that all too often rewards the rich above the needs of the poor.  There’s no doubt our country is in a much better position to weather events than parts of Europe and even the US, although we’re not immune to the global eruptions that continually erode  investor confidence and threaten to topple nations that were once too big to fall. However, I’m confident in the resounding Aussie spirit to push for the changes we need for a healthy future.  No one can forget the recent Queensland floods where a large army of ordinary people turned out in droves to help rebuild communities while many insurance companies refused to lift a finger.

We’re always promised security, shelter, affordable food and superior medical treatment by our pollies, but whichever side is in power, we’re usually disappointed at the outcome.  Before the “voice” of social media, our words of dissent were sounded behind closed doors – however now they can be shouted out for all to hear and it’s a privilege to bear witness to this new source of power.   Perhaps this influence can spread to our housing market because – as headlines all too often scream out – the dream of owning property is no longer feasible for a growing number of citizens.  It harks back to 1974 when Gough Whitlam aroused passions in his ‘It’s Time’ speech by pointing out: “The land is the basic property of the Australian people. It is the people’s land, and we will fight for the right of all Australian people to have access to it.”

A recent report conducted by ANZ –Asset Returns: Past, Present and Future – rightly pointed out that residential property has had “the highest returns of any asset class over the past 24 years.” The results of the report state that “Residential property averaged annual returns of 12%, compared to 8.9% for equities”.  It should be pointed out that the residential property in question is the principal place of residence – not a negatively geared investment property.  The reason being, not only is it exempt from any capital gains tax when sold, but also the “boom” in prices from easier lending conditions and lower rates witnessed since the 1980s has allowed growth in this asset class to outperform  most other investments.  The report goes on to point out that this level of growth can’t last perpetually, and over the next few years the bank expects shares to win the historic battle of “shares verses property”.  However, shares don’t provide shelter and home ownership will always be a needed priority for the majority and therefore a right we must fight to maintain.

Each year we receive the Annual International Housing Affordability Survey, and each year it lists Australia as having one of the most unaffordable housing markets in the world. The survey covers 325 markets across Australia, Canada, Hong Kong, Ireland, New Zealand, UK and the US. The latest report condemns Sydney as the second least affordable market behind Hong Kong, which tops the list.  (Melbourne doesn’t fare much better – coming in at number 321 out of the 325.) The report uses a system called the “median multiple”, which is calculated by dividing the median house price by the gross annual median household income.  According to the survey “affordable” house prices should have a ratio of no more than three times the average income level. We haven’t seen a ratio like that in Australia’s metropolitan regions since the 1980s (during which time interest rates were significantly higher). The same can be said for London, for which you’d have to go back to the 1970s to find a ratio at three times.

If you compare Australia with London and other European cities you’d find the general cost of living more affordable with petrol prices, eating out, entertainment and travel all well under those offered in other major cities.  Therefore, if drawing comparisons, we arguably have more disposable income to put towards a mortgage.  However, the difference between here and the UK or US is our inability to spread away from our major capital cities due to high land prices and the lack of adequate infrastructure to enable a reasonable commute to inner-city areas.  This means many home buyers are only willing or able to consider city-ring suburbs, and these are largely unaffordable for those who don’t already have a foothold in the market.  We simply must start setting up our regional centres with bullet trains and capital city amenities – just as the US, UK and Canada have seen fit to do – if we want to provide long-term affordable options for property buyers.

This weekend the REIV released its September quarterly results showingthe Melbourne median house price has deflated $16,000 (2.8%) to $551,000, from a previous recorded median of $567,000.  The overall gain, year to date, is a meagre 1.4% – which is below the rate of inflation and flags our ever-present affordability constraints.  However such small changes in the median are movements we negotiate daily and therefore mean little when it comes to purchasing property.  For example, when assessing value in a flat market, a comparable sale 12 months old can be just as significant as a comparable sale a few weeks old – little changes.  We’re not facing freefalling house prices, nor are we likely to do so.  Those who have already achieved their spot in the expensive inner- and middle-ring suburbs have taken up all the best seats and are happy to sit tight until things improve.

Melbourne has significant problems because it has the highest population growth in Australia, and it’s lacking much-needed family accommodation.  Even for those willing to move to the outer suburbs and purchase a new property they’re not necessarily faced with affordable options. In a report commissioned by the Housing Industry Association for the recent tax forum, it was stated that 38% – that’s $180,000 – of the purchase price on an average sized new property in Melbourne is immediately taken up in taxes – and it’s worse in Sydney, with 44% being swallowed up in taxes.  In New South Wales there are additional problems for builders who are hamstrung by the new Environmental Planning and Assessment Act, which differs across councils and makes the issue of building new homes extremely complex. There is simply nothing to encourage new homes sales in regional areas as a feasible alternative for home buyers or spark growth in this part of the industry.

Too much time is taken up discussing housing affordability, yet we never see broad-based changes.   If we’re going to grow as a nation and maintain our standard of living, we must start lobbying for ways to provide a better functioning housing system.  Until we make our voices heard, nothing’s going to change fast enough to ease the pain.

Catherine Cashmore

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