HOW can Australia return to 70% home ownership of just 2 decades ago … with the overseas competition for our domestic housing? And the Real Estate Sector exempt from anti-money laundering rules!
Key Points …
-the median price for a detached Sydney home soared by 86 per cent between 2012 and 2017; since fallen by 14 per cent
-HIA analysis shows it takes 1.6 average incomes to service a typical Sydney mortgage
Two Reminders that housing affordability remains a major social challenge …
-housing cost no. 1 worry in NSW
-ownership fallen fastest among the poorest 40%; particularly younger Australians
Domain: Sydney’s auction clearance rate is at its highest in more than a year. Photo: Peter Rae
Call that a housing slump? As prices rise again, many will be stuck renting
Senior economics writer
July 28, 2019
Was that it? The property downturn in Sydney and Melbourne looks to be at an end.
Domain group data released on Thursday showed house and unit prices in Melbourne rose a little last quarter while in Sydney the median price for houses and units fell by just 0.4 per cent.
“There are signs things are turning around in Sydney and Melbourne,” says Domain economist Trent Wiltshire.
The property boom in both cities lasted five years but the bust might be over in about two.
Domain’s figures show the median price for a detached home in Sydney soared by 86 per cent between 2012 and 2017 and has since fallen by 14 per cent. In Melbourne house prices rose by 73 per cent from trough to peak before falling back by 10 per cent.
A few years back federal and state governments were under real pressure to improve housing affordability.
But the steady flow of headlines about falling property prices lately has overshadowed the issue.
So has that price correction done much to alleviate the housing affordability crunch that vaulted to the top of the national agenda during the boom?
There’s no doubt conditions are now more favourable for first-time buyers – their numbers have risen sharply since the property market turned.
The Housing Industry Association’s latest housing affordability report
for the June quarter shows the combination of lower property prices and lower interest rates means affordability has now improved steadily for two years.
But the analysis shows it still takes 1.6 average incomes to service a mortgage on a typical Sydney dwelling without financial stress. In Melbourne that ratio was 1.4 average incomes.
Sydney’s median house price is still above the $1 million mark and looks likely to remain above that daunting threshold. Melbourne’s median detached house has settled around $820,000.
Grattan Institute economist Brendan Coates, who researches housing, says recent house price falls have not dealt with housing affordability challenges.
*Not enough has been done to address the underlying causes of the problem, especially by providing more housing supply in well located neighbourhoods, Coates says.
CAAN: overseas buyers market increased competition for domestic housing, and with the Real Estate Sector exempted from Anti-Money Laundering Rules (October 2018); such policies contrary to the interests of Australian First Home Buyers
Tim Readon, an economist with the Housing Industry Association, says it could take a decade to significantly improve housing affordability in Sydney and Melbourne.
There have been two reminders during the past fortnight that housing affordability remains a major social challenge, despite the recent price corrections.
First, new polling shows housing costs still rank among our biggest worries, especially in Sydney and Melbourne.
*According to the latest quarterly Ipsos Issues Monitor, which asks respondents to select the three “most important issues” facing the community, housing is still the No. 1 worry in NSW. Housing was ranked the third biggest concern in Victoria.
The share of survey respondents worried about housing costs rose in both states last quarter.
Sydney and Melbourne have both experienced two big property booms since the late 1990s. That’s made the reaction to rising property prices much more complex than in the past.
The cost of housing has become a source of public unease, even trepidation.
And that’s changed the way politicians speak about property prices.
Back in 2003 – at the tail end of Australia’s last great housing boom – then prime minister John Howard dismissed concerns about high property values, saying: “I don’t get people stopping me in the street and saying, ‘John, you’re outrageous. Under your government the value of my house has increased.'”
Prices have experienced modest growth in Melbourne, Hobart and Canberra in recent months, and fell less sharply in almost every other capital.
*According to Howard, “most people feel more secure and feel better off because the value of their homes has gone up”.
*Political leaders don’t say things like that anymore because polling suggests the reaction of many home owners to rising prices is now tinged by anxiety.
During the last property price rally, which peaked in 2017, the cost of housing began to register as an acute public concern. It began to rank alongside more traditional bugbears including healthcare, crime and the cost of living.
There are signs public unease over the cost of property has became deeply entrenched.
*The second reminder came from the Australian Bureau of Statistics, which released a survey earlier this month showing the share of Australians who own their own home continues to fall.
*The proportion of households that owned their own home fell to 66 per cent in 2017–18, down from 70 per cent two decades earlier.
The survey also found 20 per cent Australian households now own one or more residential properties other than the home they live in (5 per cent of them own four or more properties).
But the share of renters climbed to 32 per cent, 5 percentage points higher than in 1997-98.
*Coates says home ownership has fallen fastest among the poorest 40 per cent of Australians, particularly the poorest 40 per cent of younger Australians.
“Go back three decades and home ownership was fairly constant regardless of what your income was – there was just as much chance of owning your own home if you were low-income or if you were high-income, although the home you owned was obviously quite different,” he says.
“Fast-forward to today and home ownership among the poorest 40 per cent of income earners has crashed whereas home ownership trends among the top 40 per cent are relatively unchanged compared with three decades ago.”
The recent improvement in the share of first-time buyers in the housing market might slow this trend.
But the chances are, Coates warns, that home ownership will continue to fall among younger people, especially those on low incomes.
The consequences will be far-reaching.
Matt Wade is a senior economics writer at The Sydney Morning Herald.