Affordability solutions rest with Federal Govt: report

Posted on 12/06/2007  

At last, someone has put forward a reasoned explanation about low affordability, without the warped influence of vested interests.

The latest edition of the Midwood Queensland Investment Report argues that the key problem is that wages haven’t kept up with house prices. Nothing to do with land supply or stamp duty – it’s simply the widening gap between market prices and household incomes.

The report also laments, as do I, that there was nothing in the Federal Budget about housing affordability - and suggests that solutions rest mainly with the Federal Government, rather than state governments or local councils.

There are also some useful thoughts on the issue in the latest Matusik Snapshot from Matusik Property Insights, which demonstrates how serious the affordability crisis is and calls for a holistic approach to finding solutions, instead of interest groups pushing their own barrows.

“Housing affordability is much worse than many realise – the worst it has been in two generations,” says Matusik. “Unfortunately, the debate is being hijacked by self-interest groups and simplistic messages.”

The Midwood Queensland Investment Report concurs with that viewpoint and says: “There are more theories about the causes of unaffordable housing than there are property commentators. Reasons offered include insufficient land supply, statutory headworks increases and building costs.

“However the underlying problem is that wages have not kept pace with house prices as they did in the 1970s and 1980s. Since 1996, for example, house prices in capital cities have increased at an average rate of 10% per annum, but wages have increased at less than 2% per annum.

“During periods of high inflation through the 1970s and 1980s, wages increased at around 8% per annum, approximately equal to house prices. However, the situation has deteriorated since 1995 and we now have multiples of house prices to average wages increasing from 3 to 6 over the past ten years. We do not want to return to wage indexation, but other solutions are needed.”

The seriousness of the affordability problem is neatly summarised by Matusik, who says that an acceptable definition of affordable housing is that housing costs should not exceed 30% of household income. But today the share of household income needed service a typical monthly mortgage is 40% in NSW and 35% across most other states.

Another measure is that housing typically has cost between three and four times median household income over the last 50 years. But now Sydney has a median multiple of 8.5, Perth has eight and most of the other capital cities are between six and seven times.

“All of the Australian capital cities now rank in the top 25 most expensive places to live in the world,” Matusik says.

Both Matusik and Midwood lament the lack of a Federal ministry for housing. The Midwood report says: “There was not a mention in the 2007 Budget speech about housing affordability, nor is there a Federal housing agency. The issue apparently rests with the states, who are often accused by the Prime Minister and the Federal Treasurer as being the culprits by not releasing sufficient land for development, hence driving up prices.

“The process of land being released to the market depends on market forces and not councils. Without willing vendors and aggressive developers, nothing automatically happens as a result of a local council designating land as ‘residential’. Willing vendors and aggressive developers require satisfactory profits.”

The report suggests the market needs financial incentives for developers to return to the affordable end of the property market, such as a GST refund for any builder who provides homes for under $400,000.

“The issue of housing affordability has serious social implications to the way Australians will live in the future,” it says. “Most Australians believe strongly that we should continue to be a nation of home-owners, not renters. But the lead can only come from the Federal Government through taxation incentives on the supply side. There is no problem with demand.”

Unlike the development lobby, which has been advancing simplistic solutions in which it has a vested interest, Matusik says: “A holistic approach is needed to solve the problem and not just a couple of silver bullets. A concerted joint effort is needed across the housing industry bodies, rather than everyone pushing their own barrow.”

Matusik says we need a Federal Ministry of Housing and suggests a raft of ideas which together might provide solutions. They include smaller products (such as one-bedroom apartments), better financial assistance to first home buyers, more public housing and an overhaul of the taxation system as it impacts on property.

Otherwise, he says, the percentage of households renting across Australia will increase from the current 28% to around 40% inside ten years.


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