Unaffordability leads to a perfect housing storm

Transcription

1 Unaffordability leads to a perfect housing storm Dan Paton, 24, bought his first home 11 months ago after saving as a fly-in, fly-out worker in WA while still studying. Picture: Ross Swanborough The Australian 12:00AM October 25, 2016 Save

2 Journalist Dan Paton looks like a typical young Australian but the truth is he is a definite oddity. The Perth surveyor, aged 24, is the first of his mates to buy his own home, a three-bedroom, red brick house in Perth s inner northwest suburb of Wembley Downs, about 10km from the CBD. No doubt Scott Morrison would heartily approve. The Treasurer yesterday gave a speech in which he admitted what everyone else has long known, that buying a house is a fast-receding dream for many. Buying a house without a dual income has become an almost unreachable goal, the Treasurer told the Urban Development Institute of Australia, setting off a debate, yet again, over housing supply, infrastructure development and negative gearing. Earlier in the day, when warming to his theme, Morrison used an example from his southern Sydney electorate, telling Sydney s 2GB radio: It s always been pretty hard to buy a house. You go back 50 years down in the Shire, people would buy a block, they would put down a canvas tent on the site where they would build their house. I ve heard those stories, so it s always been hard, but it s even harder now. But what, if anything, can be done about it? A recent study by QBE Insurance found that in Sydney the median house price in the June quarter was $1.04 million. This compared with $774,300 in Melbourne, $545,700 in Brisbane and $461,00 in Adelaide. The median price for an apartment in Sydney during the same time frame was $729,800, $527,399 in Melbourne, $445,000 in Brisbane and in Adelaide it stood at $342,000.

3 Raine and Horne chief executive Angus Raine, who heads one of Australia s largest residential real estate agents, says the housing affordability crisis is starkest in Sydney and Melbourne. There is a perfect storm right now. Interest rates are very low, sales volumes have been over the past few years up to 30 to 40 per cent down in some areas, but the number of buyers interested has increased, he says. That s why we are seeing some houses go for $500,000 over the reserve, usually in the wealthier areas. The demographics of Sydney s inner-west and affluent north shore are locking first-home buyers out of the market. The big issue in Sydney is that a lot of the wealthy inner-ring suburbs are full of empty nesters; it s usually mum and dad, the kids have moved out, they re in a big house by themselves but they can t afford the stamp duty costs to move so they stay where they are. The younger people just can t get into those markets and when they can, the price has gone through the roof. State governments across the country failed to prepare for the nation s growing population, resulting in a serious undersupply of suitable accommodation, says REA Group chief economist Nerida Conisbee.

4 It is estimated that Melbourne is streets ahead of Sydney in building at least 30 per cent more houses over the past decade, leading to prices remaining lower and relatively stable in the southern state s capital. It was in 2000 after the Sydney Olympics that former NSW premier Bob Carr famously declared Sydney was full, which led to a dramatic slowdown in residential housing and infrastructure development over the next few years. The state governments need to play a greater role because the big problem really is the supply of new housing, especially in Sydney, Conisbee says. Australians must start adjusting their expectations as residential home prices keep rising. Sydney is considered the world s second most expensive housing market in the world behind Hong Kong, but unlike that city we don t have the big - social housing developments to prop us up, she says. It really becomes an economic problem. If an area doesn t have affordable housing then you can t get the people that it needs to make it thrive. As our cities get bigger and prices keep rising more and more, people have to start considering living on the fringes or living in regional areas. If they don t want to leave where they are living now and want to buy, then they need to accept they are going to have to get used to living in a smaller - property.

5 It was 11 months ago that Paton made his entry into the property market by buying from a distressed seller. One potential buyer had fallen over at the eleventh hour, leaving Paton to swoop in with a price of just over $500,000. Almost a year on, he says he can comfortably make mortgage repayments when land surveying jobs around Perth are plentiful. But when work is slow, he starts to sweat. The fact that a dozen mates working in the mining industry have been made redundantin the past 12 months is also playing on his mind. When work slows down, these fears start to creep into your mind, he says. I suppose that s why I m renting out spare rooms to mates I want to capitalise while interest rates are low. Paton saved up for the house throughout university, which he attended at the same time he held down jobs as an assistant surveyor in Perth and worked on remote worksites in the northwest of the state on a fly-in, fly-out basis. He credits the FIFO for turbocharging his savings but he knew at the time that it wouldn t last forever, which is why on graduation he opted for a Perthbased job. The homeowner is paying off both interest and principal on his loan in a bid to get as far ahead as possible before rates rise. The whole thing has been strategic for me. I knew the mining boom wasn t going to last forever and the sooner I got in and paid it down, the better. Economist Ian Harper, who serves on the Reserve Bank board, recently carried out a review of Australia s competition policy and recommended changes to planning and zoning regulations as a move to help improve housing affordability across the country. The duplication of red tape is found in Western Australia, where each local council has different rules governing the construction of house driveways that need to go across common property footpaths. Harper says a review of planning and zoning laws could help reduce the price of property development and improve the housing affordability situation, a sentiment echoed by the Treasurer yesterday. Harper says it was also likely that satellite cities, now emerging most noticeably in Victoria, will become more popular as people move to areas where they can afford to buy property. It s not as if people can t live elsewhere; the building of satellite cities outside of Melbourne has been successful, Harper says. The outer suburbs of the city may be losing out but people have been migrating to areas like

6 Ballarat, Bendigo, Warrnambool and Geelong. From Geelong you can be at (Melbourne s) Southern Cross station in an hour. A lot of cities are starting to change face. Many people across the country still dream of owning house, but the rising prices mean the reality of purchasing is a drawn-out process. There are about nine million dwellings in Australia and about 67 per cent of them are covered either by owner-occupied mortgages or are paid off. A report by AMP and NATSEM published last year found that per cent of household debt was linked to mortgage debt on owner-occupied housing, while 36.3 per cent was tied to investments in housing or in stockmarket shares. In Australia, most mortgages 62.8 per cent of the total home loan pool are held by people aged 30 to 50, while 30 per cent are held by people aged 65 or older. Affordability is defined in accordance with the longstanding premise that housing costs become excessive once they get higher than 30 per cent of - income. The 30 per cent threshold is used as a guide by lenders when assessing loan serviceability. In the 1990s, the sea-change phenomenon of relocation to the regions was popular, notes University of Queensland urban researcher Elin Charles- Edwards. But not so much now, she says. More and more young people are staying at home because they can t afford to move out of their parents house, she says. There s also the issue of people moving from cities to the regions. In the 1990s we saw the sea-change phenomenon emerge but we haven t seen evidence of that happening in more recent years. People are looking at the price of property, getting frustrated and staying at home or sharing a house with others for longer so they can work towards saving a deposit. The growing divide between property owners and long-term renters has the potential to cause segregation in some cities because of the rising level of social inequality. It has always been a fundamental right to be able to have a roof over your head... policymakers have to think about the type of cities that they want to create, Charles-Edwards says.

7 There is the risk of segregation occurring where you have the rich people living in one area while everyone else and the lower income earners have to shift to the outer suburbs. There is a rising rate of inequality around the world and it s an issue that needs government attention. Melbourne University urban geographer Kate Shaw says Australia in the past concentrated on high-cost residential apartment developments that have driven up median property prices in the main capital cities over recent years. But the federal and state governments should focus on diversifying their housing models and on attracting alternative financing sources to fund future developments. Shaw says the northern and western European co-operative model, where homeowners and investors buy shares in a co-op business that develops - medium-density lower-cost housing, is successful. The approach that we are seeing, that the way to improve housing affordability is to increase supply, is, I think, facile, she says. Sydney and Melbourne have added tens of thousands of high-cost, high-rise apartments over the past few years and that has not helped housing affordability because prices have not gone down, of course. It depends what type of housing is being built. The construction of high-cost housing is not helping the situation. Australia needs more low and middle-income housing. Shaw says the government needs to provide more incentives to the trilliondollar superannuation industry to encourage investment in the residential housing development market. Additional reporting: Samantha Hutchinson