Interest rates, not increasing prices, to be behind affordability concerns: Chan & Naylor
Headlining figures have seen house prices climbing in recent months, and bubble talk has been rife. However, accounting and wealth advisory group Chan & Naylor do not believe that we are in an overheating market, saying that the difficulty for affordability is around holding costs, rather than entry costs.
The 3% across the board increase, despite being much higher than this in some cities such as Sydney, is little concern compared to the result if interest rates rise above 6%, said Ken Raiss, a Chan & Naylor director.
He pointed to the best situation being a future focus on interest rates kept at 6% and inflation no more than 2.5%.
He said that buyers’ ability to purchase and hold property circles around their ability to make repayments, with current near record interest rate lows ensuring this is far more of an easy commitment compared to 10 years ago when interest rates were doubled.
“However with an inevitable rise in interest rates as the economy improves and continued growth in property value, Australia’s productivity must improve. Failure for it to do so will result in less people being able to purchase or retain property,” said Raiss. He also pointed to investors’ impact on the property market as being overstated.
“The issue for value-oriented Mum and Dads is always going to be not what you get paid but what it gets you. Therefore a near-future rate rise may seem anathema to many, but combined with a good dose of sensible economic reform it epitomises the ‘tough medicine’ required to restore the country to pre-2007 fitness,” said Raiss, noting that this will be what negates the affordability crisis over the next 10 to 20 years.