Affordability trends changing - but HIA will never admit it

Posted on 26/09/2008  

The Housing Industry Association continues to generate negative news about housing affordability. Just this week the HIA equated the decline in housing starts in the first half of 2008 with the lack of initiatives to boost the supply of affordable housing.

Australian Bureau of Statistics data shows new housing starts fell 3.7% in the June quarter, the second consecutive quarterly decline. The HIA says the tally of new home starts (38,348) was the lowest in a year. These observations follow the release last month of the HIA/CBA first-home buyer affordability index, which "barely moved" in June and remained at a 24-year low.

The HIA noted that many banks had lifted interest rates independently of the Reserve Bank, with the result that the average monthly home loan repayment in the June quarter increased 1% to $2,827. Even after the new downward trend in interest rates was signalled at the RBA's August meeting, the HIA said that a modest drop in mortgage rates would do little to improve affordability in the short-term.

These observations are, we think, more a tale of two markets (existing and new housing). We wonder about the HIA's negative perspective when the median house prices have softened over the last three quarters, household income continues to rise and the RBA has clearly stated interest rates are on the way down.

Most economists are tipping two more interest rate cuts in the short-term and on current trends this would bring the cash rate down to 6.5%. According to the RBA, real disposable income increased by 6% in 2007, in an era of the lowest unemployment in 30 years.

The Mortgage Choice/REIA Real Estate Market Facts survey showed a softening trend in house prices during the first six months of 2008. House prices actually decreased 2.7% from $471,300 in the December quarter 2007 to $458,488 in March quarter 2008. And the Australian weighted average price for units and townhouses also decreased 2.7% to $355,297. These were the largest quarterly declines in five years.

Property analyst Michael Matusik argues Australia does not have a housing affordability crisis as such - rather, he says, affordability is "constrained". Matusik points to the low loan-arrears rate in Australia. While the arrears rate has risen over the past five years it is still low, from both a national and international perspective.

Matusik agrees with the HIA on these points - new housing is over-taxed and land supply is restricted by town planning. He says the real issue is the price differential (up to 40%) between new and existing housing stock. Given this difference, it is not surprising the market share of new dwellings is now just 10%, compared with 30% a decade ago.


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