Talk is cheap on housing affordability

Talk is cheap on housing affordability

As governments, state and federal, grapple with the vexed issue of first home buyers being shut out of housing markets by soaring prices, the idiom “be careful what you wish for” could never be more true.

Can anybody imagine any sane politician (OK, that’s an oxymoron) wishing house prices to fall? Yet read the drivel from some, and you imagine that is the case.

In 2016, according to the Australian Bureau of Statistics, 561,376 established dwellings were exchanged. Another 67,855 new dwellings were completed. So that’s, give or take (because some of the new dwellings would have been re-sold), around 639,000 properties bought and sold.

 The problem is that first home buyers are struggling to get into the market – especially in the big capital cities on the eastern seaboard. During 2016 the Bureau of Statistics noted that first home buyers were making up just 13.2 percent of total housing purchases – the lowest since 2012.

Now do the maths. 13.2 percent of 639,000 equals just over 84,000 first home-buyers in 2016. Now let’s double that number, just as a guess, of the number of people who might want to buy a house, but who cannot afford it.

So let’s call the prospective first home buyer market 168,000. Now 168,000 people is a big number and politicians will be sympathetic to those who find it difficult to get into their first home. That’s why there is so much political talk about first home buyers. But, for the moment, remember that number: 168,000.

The Reserve Bank says around 6 percent of all properties change hands each year so. Maths again. 639,000 homes changed hands in 2016, which is 6 percent. So 100 percent is – give or take – a total 10 million homes (units and houses) in Australia. That number, by the way, approximates with the official statistics of number of households.

Of those 10 million or so properties, around 67 percent are occupied by people who either own them outright, or who own them with a mortgage. So, roughly, that’s 6.7 million homeowners. Almost all of these people do not want house prices to come down.

So here’s the final sum: 168,000 people want house prices to come down, but 6.7 million households (remember there are two or more people in each of these homes) want higher prices. Who do you think has the political muscle in this argument?

Property Boom

There’s a second point. State governments prosper when housing markets boom. The best example right now is New South Wales, which turned around a parlous public debt situation in just five years because of booming housing stamp duty revenue. The New South Wales government now has z

ero state debt, though this will change shortly because of its massive investment in infrastructure.

So while state government ministers might utter sympathy towards the “plight” of first home-buyers, the more pragmatic understand that it is in their interest, and the interest of most of their voters, for house prices to be higher.

The thing missing right now for first home buyers is wages growth. Normally, when housing markets go flat (they generally only “crash” when interest rates rise sharply, and that is accompanied by a rapid pick-up in unemployment) the rising wages of young first home buyers improves affordability and gives them a chance to get into the market.

But right now, with wages growth at record lows and house prices having skipped away, those same first home buyers will have to be more patient.

My gut feeling is that one measure the federal government should rapidly adopt is to prevent self-managed superannuation funds from borrowing money through elaborate schemes to enable them to negatively gear property.

Superannuation was never set up to allow gearing to add risk to retirement savings. Too many spivs have entered this market as a way to earn simple commissions on property sales. If property markets ever crack in the future (and like all markets this will happen, sometime) then it will compromise the retirement incomes of those affected.

But that is a disaster scenario. As I said at the outset, be careful what you wish for.


Has Australia’s housing market peaked?



One Comment

  •'Fiona says:

    “Talk is cheap on housing affordability ”
    Actually, I don’t care if my house goes down in price/stays the same, but I do care about the continual rise in price. I need my house to live in (it wasn’t intended to be something to sell and buy like shares – it is a home – bought to locate us for access to work, which is ever diminishing). In Sydney its unlikely my children or any we know will ever own a home. We could sell our house and downsize but we can’t give them the money to get started because we will need it to live on in retirement and we would still have to buy something to live in (around the same area where we have family, friends, work etc). There wouldn’t be enough leftover to help our kids in any substantial way as the prices are simply too high. I earn the same hourly rate today as I did 20 years ago so yes, wages growth is definitely needed. However, I wouldn’t need a lot more money if the government keep utilities prices under control, private health under control, and did something about the out of control housing market, all things that are within their power to control. How is it that those natural energy resources that are so plentiful have become so expensive for local consumers – stop selling our country to foreign countries/companies and return its wealth to the citizens. Cut “stamp duty”, ban residential sales to non-citizens and citizens who do not permanently reside in Australia, put caps on negative gearing, and make government ministers personally responsible for every cent they waste of taxpayers money.

Leave a Reply

Your email address will not be published. Required fields are marked *

165 More posts in Home Loans category
Recommended for you
Interest Rate
Why rates won’t move for two years

Ross Greenwood speaks to Bill Evans, Chief Economist at Westpac, about why he thinks rates won’t...