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.
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
The Australian residential property market of 9.53 million dwellings is currently valued at over $5.86 trillion and includes houses, semi-detached dwellings, townhouses, terrace houses, flats, units and apartments. In the past 10 years the total value has more than doubled.
Australia is near the top of the international league table of household debt relative to household disposable income.
While mortgage debt is lowest among older households, it still makes up almost 30 per cent of debt for households headed by a person aged 65 or older. This is up from 19.6 per cent in 2004.
Mortgages account for 62.8 per cent of debt for households headed by a person aged 30 to 50.
Mortgage debt is highest in Tasmania, with 65.7 per cent of total household debt tied to mortgages. New South Wales has the second highest share of mortgage debt at 58.2 per cent. The Northern Territory and the Australian Capital Territory have the lowest share of mortgage debt.
Australian average household debt is now four times what it was 27 years ago, rising from $60,000 to $245,000, reflecting an annual growth rate of 5.3 per cent above inflation and leaving our income growth rate of 1.3 per cent trailing in its wake.