Housing affordability measures attacked as new report says families are being forced to fringe suburbs

A new report into the property market that takes issue with a traditional metric used to define affordability has found families earning more than $100,000 are less able to buy a house compared with couples earning only $60,000 to $70,000.

The new Australian Housing and Urban Research Institute has also revealed workers earning less than $40,000 a year are becoming less able to buy property at all.

Report author Terry Burke says traditional metrics use a "30% rule", which states no person should spend more than 30% on housing.

"The problem with that measure is that it assumes every family has equal ability to afford housing, but more household types of have far different and higher expenditures," Burke says.

"For certain families, after meeting necessary expenditures their discretionary income is far less. So what we are proposing the residual market method, you look at the different housing types, different families, and then after expenditures, see what they have left."

Once this measure is applied, the issue of affordability becomes much more dire, the report argues.

"For the households examined, representing about 75% of all Australian households, the residual income method for the lowest 40% of income earners shows a much higher incidence of affordability problems," it argues.

"33.6% use a low-cost-budget-standard, compared to 23.9% by the 30/40 method."

The report also argues that renters have it worst off, particularly aged renters, while families are "problematic, particularly if they have younger children".

"Among households with children, 34.3% were below the low-cost-budget standard, but if the children were under five it was 68%. Why this is the case is probably a combination of the additional costs of the second children being less, and more importantly, a parent may have to drop out of the workforce for some time to undertake child-rearing functions."

Overall, the report found the usefulness of the residual income method is questionable.

"What this is showing," Burke says, "is that singles and couples have much greater capacity to afford housing than suggested by the 30% rule, and that larger households have less capacity to afford."

"You can imagine if you're a single person earning $100,000, then you have a lot to spend on housing, but if you're a family on the same amount, you have much less."

Analysing housing in Melbourne, the report found that families are gradually being pushed into the outer fringe of the city and that more singles are heading into the inner suburbs, resulting in a greater number of smaller apartments being built.

"You don't see a lot of affordable three bedroom apartments being built. It's all one-bedroom and two-bedroom apartments," Burke says.

However, the report stops short at putting forward a detailed proposal for solving the crisis. In the end, Burke says, it's up to the government.

"There is nothing new and radical in what we can suggest. It's a problem of land use, high policies around land, zoning permits, negative gearing, and so on."

"It's a problem of supply. We can't come up with any new solutions, because they're pretty well known. The government just has to do them."

This article originally appeared on SmartCompany.