Housing affordability takes centre stage
Homes are expensive to buy and have become more expensive over time. Whereas the average home in Sydney cost five times the average household income in the 1980s, the multiple has now risen to fifteen times. Interest rates are substantially lower now than they were in the 1980s (mortgage rates were around 13 to 14 per cent) but nevertheless, it has become substantially harder for first home buyers to enter the housing market.
While buying a first home has become more challenging over time, a more recent challenge has been the rental market. Rents across Australia have increased by 18 per cent since the start of the pandemic with many places seeing rents rise by well over $50 a week. As far as affordability goes, this is just as problematic, particularly given renters are on average younger and have lower incomes than home owners. For the most disadvantaged, rent rises at this level can lead to much higher levels of homelessness.
Last week, recommendations from the federal government’s housing affordability inquiry were released. Not surprisingly, the report focused on the supply of housing. Most simply, areas where there is enough housing for those that want to live there are more affordable. Poor planning processes were seen as the biggest challenge.
While housing supply is the best way to make homes more affordable, the challenge is that it takes a long time. The report outlined that it could take 10 years to get to a level of supply that would make homes affordable. In the meantime, other recommendations included allowing first home buyers to use their superannuation as a deposit and the abolishment of stamp duty and a move to a land tax system. Of note is the recommendations did not recommend changes to the Reserve Bank of Australia’s charter to ensure house price stability as is now done in New Zealand.
Next week, the 2022/23 federal budget will be released. At this point housing affordability doesn’t look like it will be a major component of the budget which is expected to instead focus on other cost of living pressures such as fuel costs. Regardless, many of the challenges associated with housing, such as planning and stamp duty, are the responsibilities of the states.
Source: Ray White Now
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