How can we ensure that there are enough affordable houses and units to meet demand?

What’s the problem?

Historically, in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, median house prices were typically 2 to 3 times median household income. In recent decades this has changed, with house prices outpacing inflation and incomes, particularly in markets such as Vancouver, Sydney, San Francisco, London and Auckland.

Alt text In 1988 the average Australian household could have paid off all its debt with the after-tax income it earned in eight months. In 2015, this would take the average Australian household 22 months. Price rises are being driven by both demand (the buyers) and supply (the builders) side factors. For example, undersupply in housing construction can be caused by planning rules that prevent new buildings or higher density developments. It can also be caused by ‘greenfield’ sites becoming rarer and more expensive on the city limits.

Population growth, rental price growth and favourable tax arrangements can all be drivers of demand. The result is that many would-be buyers may never be able to afford a house. For those that do take the leap, many are faced with crippling debt. These households are at greater risk of experiencing economic hardship if they were to experience a financial shock, such as a sudden reduction in their income or if interest rates were to rise.

Seven things you need to know

Want more? Watch our infographic video about affordable housing here.

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