From IN THE BLACK May 06
Wherever you are in Australia houses are bloody expensive and have been for some time. State and federal governments have debated the issue and there has even been a Productivity Commission report. According to the Demographia International Housing Survey (using September figures) Sydney is the seventh most expensive city in the world to buy property, with the median house costing 8.5 times the median take-home pay.
Still, at least you’re not living in Los Angeles and Orange County where the median price is 11.2 times take-home pay. While California is one of the most expensive places to buy a home, Demographia singles out Australia. Its report says: ‘The most pervasive housing affordability crisis is in Australia, where all markets in metropolitan areas with more than 1 million have median multiples of six or higher.’ Affordability was only marginally better in Ireland, New Zealand and the UK.
The Housing Industry Association (HIA) publishes a quarterly survey on housing affordability in conjunction with Commonwealth Bank figures. Simon Tennent, HIA’s executive director housing and economics, says the problem is that local planning authorities are restricting the supply of land on city fringes and rely on urban infill, the redevelopment of land in the cities. Essentially an issue of supply versus demand. Tennent says there is no reason why there should be a constraint on land supply.
There are also the high transactional costs when buying land. Using the worst-case example, a $520,000 land and house package in the fringes of Sydney, fees and charges amount to $125,000. ‘Our belief is that many things have bid up house prices. We’ve had low interest rates, we know that there is a favourable tax treatment, we know that there’s been a first-time owners’ grant,’ Tennent says. ‘We also know that the share market was in very poor shape at the start of this decade and houses were going up by 20 per cent per annum.’
The HIA quarterly statistics assume an 80 per cent mortgage of a median price property for a person on a median take-home pay packet. When the index is about 100, an individual is looking at 22-23 per cent of income paying a mortgage. Housing hasn’t always been so expensive. As Tennent says: ‘There was a period in the mid-1990s when housing affordability was at record highs and it’s made a lot of people very rich.’
Housing is seen as a building block of economic prosperity. When the public feels wealthy – thanks to increases in house prices – it consumes. Demographia notes that home ownership played an important role in democratising wealth. But now the housing bubble could threaten prosperity. As the report says: ‘These benefits are threatened by high house prices that are likely to reduce home ownership and household wealth-creating capacity. A nation with more renters is likely to be both less prosperous and less cohesive.’
By and large the baby boomers prospered from this boom while the Generation X and Y are locked out. Tennent says: ‘We believe the market will naturally correct – of course, it will naturally correct –but it’s going to take a long, long time and in the meantime you end up with a home buying generation between the ages of 25 and 35 who are becoming the have nots.’
The good news is that the heat is coming out of the property market locally. ‘We honestly believe that for the next two, three, [or] four years in real terms after inflation that house prices are really going to be barely moving,’ Tennent says. ‘There are some early signs. The only way is up, but I think it’s going to take some time to get there.’
Meanwhile, the residents of Buffalo in the US are enjoying palatial homes costing only 2.2 times their take-home pay. Its residents are probably saying: ‘Where the bloody hell are you?’