Arguing the Case that there is Currently Affordable Housing in Australia

By Kristie Kwok on 13 Feb 2014
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Arguing the Case that there is Currently Affordable Housing in Australia

Is there affordable housing in Australia at the moment?
Photo: The Homepage

The debate around housing affordability has been hotly contested in recent months with no clear winner. 

Part of the problem is that housing affordability means different things to different people.

Central to the concept of affordable housing is a person’s ability to pay for their dwelling; if we start our analysis from this basic premise, then there is clear evidence that housing in Australia is currently affordable.

How Can There Be Affordable Housing in Australia When Prices Are Going Up So Fast?

According to the RP Data – Riskmark Home Value Index, home values grew nationally by 9.8 per cent in 2013, driven mainly by the Sydney, Perth and Melbourne markets. 

At the same time, first home buyer loan commitments have fallen to an all-time low of 12.3 per cent. These statistics appear to suggest rising prices are making houses less affordable for first time buyers.

“Part of the problem is that housing affordability means different things to different people.”

However, the fact is that house prices have remained virtually unchanged compared to three years ago, except for Sydney and Perth, where dwelling prices have grown higher.

If you make adjustments for inflation, then home values across each capital city market (including Sydney and Perth) are below their previous peak

Housing Affordability Index: Mortgage Serviceability and Housing Affordability

The HIA-CBA Housing Affordability Index measures the extent to which average weekly earnings can service a mortgage for a median priced dwelling. It is often criticised because interest rates are a key driver of the movements in the index.

Although it should be interpreted with care, the index does reflect the reality that mortgage serviceability has improved. 

Despite home loans growing larger in size, savings in low interest rates have ensured that repayments as a percentage of household disposable income have remained around the long run average experienced over the last 30 years.

Of course, the danger is if one assumes low rates will continue over the life of a mortgage.

Are Affordable Housing Solutions Effective If Buyers Can’t Live Where They Want?

Using the Melbourne market as an example, while there were clearly popular suburbs in high demand last year, outer suburbs struggled with an oversupply of housing stock.

No doubt long commutes to work and poor infrastructure play a big part in deterring potential buyers from outer areas with cheaper housing. 

“The fact is that house prices have remained virtually unchanged compared to three years ago, except for Sydney and Perth, where dwelling prices have grown higher.” 

However, the issue here is not housing affordability but infrastructure spending, which needs to lift to enable better roads, public transport and more schools to make these outer suburbs more attractive options. 

What is Affordable Housing? And a Final Word

The problem with this debate is that some assess housing affordability in terms of mortgage serviceability; while others include factors such as utility costs, ratio of building costs to land costs and household demographics.

Such different approaches are bound to yield vastly different conclusions.

House prices in real terms have not drastically increased, rates are low and the proportion of repayments to disposable income has remained at its long term average. These facts make it difficult to argue that housing affordability has deteriorated.

The advice provided on this website is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should seek your own independent advice, having regard to the appropriateness, your objectives, financial situation and needs.

About the Author

Kristie Kwok is a Street News writer and a fully qualified chartered accountant with a Bachelor of Accounting and Finance degree. Kristie has a passion for all aspects related to property. She also has a strong interest in the economy and financial markets. Kristie has worked for reputable corporates such as KPMG UK, UBS, Lloyds Banking Group and the Royal Bank of Scotland.

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