Demographia figures 'flawed' but Australian cities unaffordable: RP Data's Tim Lawless

RP Data’s Tim Lawless has given qualified support to the findings of US-based research group Demographia that Australian housing is among the most unaffordable in the world.

According to Demographia’s eighth annual International Housing Affordability Survey, Australian cities are among the most unaffordable in the world, led by Sydney with a median multiple (the ratio of median house price to median income) of 9.2 and Melbourne with a median multiple of 8.4. It places the blame on restrictive land use policies that encourage speculators and investors in dense urban areas.

Lawless says Demographia might exaggerate the affordability figures “slightly” but there is no doubt Australian cities are expensive places to buy homes.

“There are some flaws in the Demographia methodology – they use median house prices, whereas a better guide would be median dwelling prices, as around 35% of dwellings in Australia are units. Also it does not include regional dwelling prices and is focused on capital cities,” he says.

If you include these figures, Lawless says, “median prices will come down much further”.

These methodology issues aside Lawless backs the survey and says it reflects the fact that “we are in a market place that does have affordability challenges and even though we have seen price declines, we have not seen a dramatic improvement in the affordability level”.

According to Lawless, affordability is already changing consumer behaviour.

“There isn't any argument that in areas like Sydney for example, affordability is a real issue and we are seeing more and more people look towards the unit market as opposed to the detached housing in an effort to combat affordability,” he says in an interview on ABC radio.

Demographia founder and report author Wendell Cox says Australian house prices are two to three times higher than what they should be and says land use regulation and a focus on developing housing close to the major cities is to blame.

“There is nothing unique at all in Australia for prices to be so unaffordable… Basic economics tells us that when you create a shortage of anything, be it land or cars, you are going to drive the prices up.

“[Housing affordability problems in Australia] have to do with land use regulation, this philosophy of urban consolidation which has drawn strict borders around virtually all [Australian] capital cities so that it is virtually impossible to build much on the fringe of the city.”

Cox says regulations governing land development fuels property speculation and says such policies ultimately led to the bursting of the property bubble in the US.

“Australia has a housing bubble, of that there is no question. Australian housing is incredibly over-valued by any sort of international standard.

“Whether it bursts or not is beyond my ability to predict.”

Cox says investors are not drawn to markets that don’t have constraints.

“There aren’t any speculators in Dallas-Fort Worth or Atlanta. Why? Because you can develop land there.”

“It’s just unbelievable that sections of land in the suburbs of Sydney are going for $200,000 and $300,000 – we’re selling houses for that in a lot of urban areas in the US and Canada.”

Cox says there is plenty of room for expansion around Sydney, Melbourne, Adelaide, Perth and Brisbane.

Lawless agrees that land restrictions are driving prices up, but says there are other factors which have contributed to Australian house prices being far higher than in the US.

“Demographically we are unique… 50% of our population is across three cities. We have tight urban densities in those cities and we have very little opportunities for employment outside the capital cities.”

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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