Matusik Missive – Unaffordable
9th February 2011
Well thanks, Demographia, for rubbing our noses in it again. We all know Australian housing is unaffordable, so we could do without the annual reminder. We would do something about it if we could, but doing such requires government action, which we all know isn’t going to happen. Well…..not with the current group of cretins at the wheel.
But low affordability doesn’t mean ‘housing bubble’, as too many journos are inclined to think. Residential property downunder is overvalued, no doubt, but assuming people keep their jobs and continue to pay their mortgages, then a slow house price deflate (in real terms) is the most likely outcome. House prices are unlikely to grow much (for the vast majority of dwellings) until wages and rents catch-up – which, unfortunately, could take up to a decade. This happened in the 1990s and history is likely to repeat.
Whilst it is point scoring, it is worth highlighting some flaws in the Demographia reporting.
Ø The report does not take into account the type of dwellings - a 250sqm detached house on 800sqm of freehold Aussie dirt, is not the same as a two-bedroom 62sqm Hong Kong apartment.
Ø The work doesn't take into account equity, which on average exceeds 60% across all Australian home owners (including investors) and is as high as 80% for owner residents, excluding recent first home buyers of course.
Ø The income data is questionable as it is ABS-based; one in eight do not fill in the income question at census time; and ATO figures show an average household income 12% higher than what the ABS reports. Why? It is harder to lie to the ATO. Also, I am pretty sure (based on past Demographia studies anyway), that gross rather than net incomes are used, so therefore recent tax cuts are not factored in either.
Ø Also, regional areas like the Sunshine Coast support a high proportion of semi and fully-retired households that earn less (via traditional means) but own expensive properties - so the measure of wealth is inaccurate.
No doubt the creation of affordable new homes is an issue and a major one facing the country. But unfortunately, its resolution remains largely within the control of governments
What needs to be done in this regard includes:
- Expedite rezoning, approvals and development timeframes.
- More judicious application of taxes - remove GST on new home construction; have annual infrastructure charges over the life of the project rather than existing user-pays-upfront model and reduce stamp duties on newly constructed dwellings.
- Provide crucial infrastructure in advance of need.
- Decentralise the workforce and population to regional centres.
- Match migration supply to jobs needed.
So nothing much will change, resulting in people moving less, more renovating in place and fewer property transactions as people's priorities change. Not a bad thing really, except if you make money out of real estate transactions and new development activity.
Oh, but one thing is certain, Demographia will issue the same findings next year, too.
Thank you to all who have donated so far to Lucy's fundraiser for the Queensland Cancer Council. For those who haven't, please consider doing so - $10 or $20 goes a long way. A special thanks to Grant Dennis and the Dennis Family Corporation for their generous donation – somewhat fitting given that this missive is about housing affordability and the Dennis family are one of the few real suppliers of such stock.
Visit http://www.everydayhero.com.au/lucyarnold
Michael Matusik
