Five concerning housing affordability issues
Housing affordability is not a new problem, and as the Federal Treasurer Scott Morrison pointed out, it has actually never been easy to buy a home, especially in our major metropolitan areas.
Housing affordability will be an important policy focus of the Turnbull Government. And to try to get it right, the Federal Treasurer gave a 4400 word speech last week to outline some of the issues.
"As we move forward it is important to properly diagnose the problems we are trying to solve," he said.
He noted when combining both outright ownership and those paying off a mortgage, the proportion of Australian households that own their own home has fallen from 71 per cent to 67 per cent over the past two decades, so there is a certainly a trend there.
He did stress the increase in Australian house prices has largely been driven by fundamental determinants.
"Australia's housing markets may be expensive, but in aggregate they are substantively sound, reflecting the natural tension between the forces of supply and demand," he said.
I took five nuggets from the speech which are concerning, but which highlight the complexity of it all.
1) Between June 2010 and June 2015, the time taken for a dual income couple to save for a 20 per cent deposit in Sydney increased from 5.8 years to 7.9 years. In Melbourne it increased from 5.3 years to 5.8 years. However, outside NSW and Victoria, the change in the number of years to save for a deposit actually fell, showing the impacts are not even across the country.
2) Home ownership rates are falling across all age groups, not just young Australians. Between 2002 and 2014, Australian home ownership among 25-34 year olds declined from 38 per cent to 29 per cent while for 35 to 44 year olds it fell from 63 per cent to 52 per cent.
3) When we look at the change in home ownership by state, the largest falls over the last twenty years have been in Queensland and Victoria, rather than NSW.
4) The percentage of purchasing households aged under 44 that are dual income has risen from just over 50 per cent in 1981 to more than 80 per cent in 2011, while the proportion of single income households fell from around 50 per cent to less than 20 per cent over the same period.
5) The proportion of home owners aged over 45 with a mortgage has increased significantly over the past 20 years. It's taking longer to be free of the mortgage with the trend having the potential to undermine retirement incomes.
Morrison noted the challenge of not being able to access secure housing has flow on effects to many other policy areas. It impacts health, work force participation, social cohesion, welfare dependency, family formation and household consumption to name a few.
Morrison concluded that of all the determinants of house prices in Australia, whether cyclical or structural, "the most important factor behind rising prices has been the long running impediments to the supply side of the market."
Some argue with that conclusion seeking him to look at the impact of overseas migration which was not addressed, although he did note between 2005 and 2010, Australia had the highest average rate of overall population growth in the OECD, except for Israel.
As there is no single housing market in Australia, there will however never be a single solution.
This article was first published in the Saturday Daily Telegraph.