Real estate reality doesn't match the rhetoric

By Terry Ryder, 3rd December 2011

After 30 years researching real estate I’m still amazed at the gulf between perceptions and truth in the property industry.

The ease with which vested interests can have their propaganda accepted as fact still surprises me.

I regularly speak to groups of property consumers around the nation and take the opportunity to test what people believe to be true in real estate.

Sadly, many have their heads full of misinformation: we have the world’s most unaffordable housing (we don’t), we have a chronic housing shortage crisis (we don’t) and the best places to find long-term capital growth are the prime inner-city suburbs (they’re not).

The issue of affordability is the most mis-reported issue impacting on Australian real estate. Organizations with political motivations for years have been publishing propaganda masquerading as research to create the impression we have an affordability crisis.

They have been willing to use dodgy data to achieve the results they want.

The Reserve Bank has sought to counter this by putting forward a dispassionate assessment based on the official data. But Glenn Stevens’ assertions - that our house prices, relative to incomes, are “unremarkable by world standards” and haven’t changed in the past 10 years – have achieved little traction in the media.

Now the Australian Bureau of Statistics has published a report in which it compares 2010 housing costs with those ten years earlier.

Among the many interesting findings is this: housing costs, as a share of incomes, have not changed in the past decade.

Speaking of the average situation across the nation, the ABS finds: “Over the past decade, the proportion of gross income that households with a mortgage spend on housing costs have been stable, at about 18 per cent.”

The proportion that private renters spend on housing costs has also remained stable over the past ten years, representing about 19% of gross income.

In the light of that information, how have we gained the impression that affordability is the worst it’s ever been?

Quite simply, some organizations have fudged the figures to arrive at the result they want for political purposes. There has also been a tendency by media to publish the rise in house prices or rents in isolation, without considering that incomes have been rising steadily as well.

How is it that the official figures show that, at June 2010, the typical first-home buyer was paying $370,000 and the average changeover buyer was paying $450,000, while the Housing Industry Association affordability index claimed the average buyer was paying $503,000 at that time?

Despite the affordability crisis claimed by the industry, home ownership rates have remained within the 69-71 per cent band since 1995.

There are many other pertinent findings. One is that most first-home buyers opt for established housing (82 per cent of them) rather than new house-and-land packages, because the secondhand house is, on average, $70,000 cheaper.

It also recorded how our homes are become larger while our households have become smaller. Eight in ten households live in homes with more bedrooms that they need.

What this tells us is that developers and builders, who complain daily about the lack of demand for their products, are still pumping big costly houses that are beyond the needs and budgets of the average buyer.

The solution is, partly at least, in their hands.

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