Australia s Housing Affordability Crisis Judy Yates University of Sydney
Key messages Housing affordability problems: 1. cyclically are currently high 2. are structural as well as cyclical 3. do not apply to all in housing stress and are greater for renters than for purchasers 4. are serious and will get worse if structural problems are not addressed 5. arise because of the actions of those who do NOT have an affordability problem. 2
Trends 1. House prices rising faster than household incomes 2. Home ownership rates falling 3. Average housing cost ratios increasing 4. Proportion in housing stress has increased 5. Problem is projected to get worse 3
House prices have increased faster than household incomes for past ~40 years 120 100 80 Real house prices Real house price trend Real per household income trend Index 60 40 20 0 1960 1970 1980 1990 2000 2010 Source: NRV3, FR
Deposit gap index has increased more than house price to income index for past ~30 years Aust median house price Affordable loan.30 repay ratio Deposit gap/ income pa House price/ income pa Interest rate Male AWE Deposit gap $ % $ pa $ $ % % 1960 $7,000 5.00 $2,000 $9,000 -$2,000-100 400 1970 $13,000 7.25 $4,000 $13,000 $0 0 300 1980 $49,000 9.88 $12,000 $33,000 $16,000 100 400 1990 $119,000 16.50 $28,000 $50,000 $69,000 200 400 2000 $216,000 7.80 $41,000 $134,000 $82,000 200 500 2007 $404,000 8.30 $57,000 $179,000 $224,700 400 700 Source: NRV3, RP 11
Deposit gap index has increased more than house price to income index for past ~30 years $500,000 $400,000 $300,000 $200,000 $100,000 400 300 200 100 0 $0-100 1960 1970 1980 1990 2000 2010 Median real house prices ($2007) (LHS) Deposit gap/income (AWE)(%) (RHS) Source: NRV3, RP10
Age specific HO rates have declined for young over past ~30 years (%) 80 70 60 50 40 1971 1976 1981 1986 1991 1996 2001 2006 25-29 years 30-34 years 35-39 years Source: NRV3, RP11
Average housing cost ratios have increased by ~40% over past ~30 years 16 Housing cost ratio (%) 12 8 4 0 1975-76 1984 1988-89 1993-94 1998-99 2003-04 Source: NRV3, RP3
No. of households with housing cost ratios >30% increased rapidly over past ~30 years ('000s) 1,600 1,200 800 400 0 1975-76 1984 1993-94 2003-04 2025 2045 Source: HES and NRV3, RP11
No. households with housing cost ratios >30% projected to increased over next ~40 years ('000s) 1,600 1,200 800 400 0 1975-76 1984 1993-94 2003-04 2025 2045 Source: HES and NRV3, RP11
Outcomes and projected outcomes worse for lower income renters All households Incidence (%) 75 50 25 0 2006 2025 2045 All h'holds Owners Purchasers Private renters Lower income households Source: NRV3 RP11 Incidence (%) 75 50 25 0 2006 2025 2045 All h'holds Owners Purchasers Private renters 11
Outcomes worse for lower income renters 100 Lower income private renters Incidence of stress (%) 80 60 40 20 0 Moderate income private renters Lower income purchasers Moderate income purchasers 0 100 200 300 400 500 600 Source: NRV3, FR Numbers in stress ('000s) 12
Housing affordability problems arise when housing stress forces households into decisions that adversely affect them. Experience high levels financial stress (credit card debt; regular use of pawn shops) Have trouble meeting rent payments, unanticipated costs Inadequate resources to meet basic non-housing needs Enforced mobility Poor location choices, inappropriate dwellings affect ~25% households in housing stress Most intense (and often long term) for lower income renters 13
How did it come about? From demand pressures increasing number of households (population growth + decreasing household size) increasing incomes increased availability of mortgage finance increasing wealth assisted by lack of capital gains taxes on owner-occupied housing spatial concentration of demand (in urban and coastal regions) Predominantly caused by households who do NOT have an affordability problem 14
How did it come about? On supply side increasing cost of land time taken for release of new land increasing scarcity value well located land move to user pays for infrastructure financing displacement of FHBs by rental investors (encouraged by taxation incentives) reduced supply of affordable private rental housing declining supply of social housing 15
System failures 1. Limited land supply in accessible locations 2. New construction being driven by demand from established households 3. Households no longer following a well established housing career 4. Demand pressures in rental market displacing low rent stock; low rent supply not forthcoming 16
Increasing dwelling price gradients in metro areas Sydney Melbourne Source: PC (2004)
Dwelling stock increasing in size 20.0 15.0 Growth 2001-2006 (%) 10.0 5.0 0.0-5.0 0 1 2 3 4 5+ All Number of bedrooms Source: 2001,06 census tables (20680-x49, i20)
Low rent stock occupied by high income households % of dwellings 100% 75% 50% 25% Household income High Mod-high Moderate Low-mod Low 0% 1996 2001 1996 2001 1996 2001 Low Low-mod All rent Weekly rent 1996 and 2001 Source: Yates, Wulff and Reynolds (2004) AHURI report on Low Rent Supply 19
Supply of low rent stock falling 25 % of rental dwellings 20 15 10 5 0 0 100 200 300 400 500 600 700 Rent ($2006 pw ) 1996 2001 2006 Source: 2006 census tables (20680-t18), CPI adjusted
What can we do about it? 1. Recognise that housing outcomes go well outside range of housing policy Eg introduce housing impact statement 2. Reduce scarcity of desirable land Increase supply desirable land (eg infrastructure, transport) Reduce desirability of scarce land (decrease tax incentives for owning land; increase density) 3. Increase housing available for shelter for low to moderate income households Increase supply affordable rental housing Help marginal purchasers stay in their homes 21
Material drawn largely from NRV3 Final Report Housing Affordability: A 21st Century Problem Judith Yates and Vivienne Milligan with Mike Berry, Terry Burke, Michelle Gabriel, Peter Phibbs, Simon Pinnegar and Bill Randolph Report and background research papers available at http://www.ahuri.edu.au/nrv/nrv3/nrv3_assoc_docs.html
Key messages Housing affordability problems: 1. cyclically are currently high 2. are structural as well as cyclical 3. do not apply to all in housing stress and are greater for renters than for purchasers 4. are serious and will get worse if structural problems are not addressed 5. arise because of the actions of those who do NOT have an affordability problem. 23
What s the problem? At individual/household level increasing costs of access to home ownership declining home ownership rates amongst young large numbers in mortgage stress large numbers in housing stress in private rental At economy wide level intra and intergenerational inequities labour market inefficiencies potential macroeconomic instability 24
Inequality 1000 800 600 Owneroccupiers 400 200 0 15-24 25-34 35-44 45-54 55-64 65-74 75+ All Others 400 200 0 15-24 25-34 35-44 45-54 55-64 65-74 75+ All Source: NRV3, RP10 Other net worth Other property Owner-occupied housing 25
Inefficiency Source: NRV3, RP5 26
Instability Source: NRV3, RP4 27