Housing Income

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There continues to be a yawning divide between the facts on housing affordability and media coverage claiming a crisis.
Yawning is an appropriate word, because journalistic insistence on declaring the Great Australian Dream dead in the face of all the evidence has become boring.
According the latest research on the subject, property in Australia is more affordable than it was 12 months ago – with the exception of one state (no prizes for guessing which one) .
Across Australia, affordability improved in the June Quarter from 30.9% of household income devoted to mortgage payment to 30.3%, according to a new report from the Real Estate Institute of Australia and Adelaide Bank.
The exception to a general picture of improving affordability was New South Wales, where households used 35.6% of their income to meet their mortgage repayments in the June 2015 quarter, compared to 35.3% in the June 2014 quarter.
Last month, the other major research into housing affordability – the Housing Affordability Index from the HIA – also found that affordability has been improving around Australia, with Sydney as the obvious exception.
Media generally manages to ignore that reality and run headlines like “Are foreign investors destroying the first home buyer market?” and articles like a recent one published recently by the Herald Sun which is a serious candidate for our annual Worst Article of the Year award. 
A “journalist” declared in the Herald Sun that “the Great Australian Dream of a house in the suburbs has become an unaffordable nightmare” and justified this by quoting the price of the most expensive houses in a range of suburbs – not the median price, but the dearest. 
The writer noted there was a house for sale in Doncaster asking $3.5 million and used that to support this declaration: “What hope will our kids have?” The article went downhill from there. 
That’s the reality of mainstream media in modern Australia. There are favoured story lines and publications will pursue them with little regard for the facts.
Back in the real world, the new research on affordability shows that the Northern Territory experienced the biggest gain in affordability, with the share of income needed to meet mortgage repayments falling 2.8 percentage points, from 26.6% to 24.9%. 
Western Australia improved from 26.6% to 24.4% and Tasmania from 25% to 22.9%. South Australian mortgagees had a saving of 1.6 points, from 27.1% to 25.5%, while Queensland improved from 28.1% to 27.3%, the ACT from 19.8% to 19.5% and Victoria from 32.2% to 32.1%.
Those hard statistics add to the growing pile of evidence that concerns about price booms, bubbles and out-of-control markets are overblown and wide of the mark.
It has promoted Domain Group senior economist Dr Andrew Wilson – one of the few economists in the land who has a grasp on property issues – to call on Australia’s prudential banking regulator to prove that the country's housing market really does need fixing
Wilson questioned the basis for restrictions to investor lending, saying that APRA had not provided detailed modeling to show why it believed the investor market was overheated.
“Where's the heat? I don't understand where the heat is,” he said. “We have the lowest level of mortgage defaults we've seen. Affordability is still below average levels.”
Wilson said Australian markets have a historical reputation for “orderly growth and correction phases”. He who noted that the one heated market, Sydney, was starting to cool as part of that natural process.
“This is the nature of our housing markets and we're very fortunate that we have those in-built stabilisers in our housing market. I think once we see policymakers interfere in that process, the downstream consequences are really problematic."
Terry Ryder is the founder of <a href="https://www.hotspotting.com.au/" target="_blank">hotspotting.com.au</a>. You can <a href="https://mailto:ryder@hotspotting.com.au" target="_blank">email him</a> or follow him on <a href="https://twitter.com/hotspotting" target="_blank">Twitter.</a>
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Yawning divide between the facts on housing affordability: Terry Ryder

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GUEST OBSERVER
Life has changed significantly for young Australians over the last 40 years. Millennials now delay marriage and childbirth, increase their years of study and have much greater rates of part-time work.
As a result, millennials might be feeling a little hard done by, but Australians aged from 25 to 34 have actually enjoyed increases in their incomes compared to the population average. They have also done better than people the same age in other countries.
These are some of the findings of a report from the Committee for the Economic Development of Australia: How unequal? Insights on inequality. It questions whether young people today are likely to do as well economically as previous generations.
Early millennials, born between 1981 and 1985, experienced household income growth 27% higher than the Australian average up to 2010, while households with a head aged 70 to 74 enjoyed growth only 2% higher than the national average.
Although incomes might be higher, the picture of household wealth is different. The wealth of older Australians has increased much more rapidly than that of younger generations, due to both increasing superannuation wealth and increasing property wealth.
Incomes are better for Gen Y in Australia
Work by the Luxembourg Income Study found that in the United Kingdom, households with a head aged 25 to 29 years saw income growth 2% less than the overall national average in the three decades up to 2010. They also found households with a head aged 65 years and over enjoyed income growth more than 60% higher than average.
In brief, in the UK older households became much better-off and younger households became slightly worse off than the population as a whole. Similarly young Americans experienced income growth 9% less than the national average, those in Spain 12% less and in Italy 19% less. In all these and other countries, older households have done better than the national average, although none as well as in the UK.
In contrast, younger Australians did better than the national average in income terms, and better than older Australians.
ABS data show that in 2016, Generation Y Australians had higher incomes between the ages of 25 to 34 than the preceding two generations – about 18% higher than those born a decade earlier. However, the real increase appears to have slowed compared to the previous decade, that cohort had incomes 65% higher than those a decade earlier (due to the mining boom).
Older Australians, born between 1941 and 1950 (including the first “baby boomers”), show an increase in average incomes between 1995-96 and 2005-06, and then a decline as they enter retirement. Middle baby boomers, born between 1951 and 1960, show a marked increase in real incomes between the age of 35-44 years and 45 to 54 years (from A$1,370 per week to A$2,200 per week). But they only experienced a very small increase in the next decade, because some of them retired before the age of 65.
\Baby boomers born between 1961 and 1970 show substantially higher incomes than those born a decade earlier – more than 20% higher in real terms at the age of 45 to 54 years. Generation X born between 1971 and 1980 show large increases in real incomes – nearly 45% - across the last decade and are about 34% better off than the preceding cohort were at the same age.
What has happened to wealth
Households with people under 35 years of age were actually slightly worse off in wealth terms in 2015-16, than a decade earlier, with their net worth falling by around 8%, according to Australian Bureau of Statistics data. But for those aged 65 and over, there were increases closer to 40% in real net worth.
The value of owner-occupied housing fell for Australia’s youngest age group, but older households enjoyed large increases in the value of their homes and large increases in the value of other property they own.
Overall, all age groups saw real increases in the value of their total assets, including the youngest age group. This means that falls in wealth are due to an increase in their debts.
ABS data also shows that at all ages there has been a fall in the share of outright home owners, and also in the share of the youngest age group with a mortgage. For younger age groups an increasing share are private renters. This was a significant increase from 43 to 53% for those aged 25 to 34 years and from 26 to 31% for those aged 35 to 44 years.
For those 65 years and over, there has been little change - around 85% of households aged 65 years and over were owners or purchasers in both 2005-06 and 2015-16.
Younger households have seen both declining rates of home purchasing and higher overall indebtedness. Rental costs have also increased faster than the costs of home ownership, and this may have increased the barriers that younger generations face in establishing themselves in home ownership.
<img src="https://counter.theconversation.com/content/94501/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">But when it comes to incomes, millennials in Australia have continued to progress.
Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University
This article was originally published on <a href="http://theconversation.com">The Conversation</a>. Read the <a href="https://theconversation.com/australian-millennials-incomes-have-grown-more-than-baby-boomers-and-millennials-in-other-countries-94501">original article</a>.
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Australian millennials' incomes have grown well compared to other countries: Peter Whiteford

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There hasn't been a rate rise in seven years, and RBA governor Philip Lowe has warned many households will be shocked when it does come.
He suggested however a rate rise will only occur once income lifts.
When addressing the Australia-Israel Chamber of Commerce this week, Lowe said the RBA expect a further pick-up in the Australian economy.
"Increased investment and hiring, as well as a lift in exports, should see stronger GDP growth this year and next," he stated.
"The better labour market should lead to a pick-up in wages growth. Inflation is also expected to gradually pick up. So, we are making progress."
Lowe suggested that a series of trade tension escalations could put the health of the global economy at risk and damage the Australia economy.
Governor Lowe noted as the last increase was more than seven years ago, any rate increase would “come as a shock to some people”.
He said domestically, the high level of household debt remains a source of vulnerability, although the risks in this area are no longer building, following the strengthening of lending standards.
While he said a cash rate move will be more likely up than down due to the strengthening economy, Lowe suggested because the progress expected is gradual, the Reserve Bank Board "does not see a strong case for a near-term adjustment in monetary policy."
"While some other central banks are raising their policy rates, we need to keep in mind that their economic circumstances are different and that they have had lower policy rates than us over the past decade, in some cases at zero or even below," he said.
"A continuation of the current stance of monetary policy in Australia will help our economy adjust and should see further progress in reducing unemployment and having inflation return to target.
Lowe said one of the biggest factors is the low income growth.
Employment growth has lifted, however wage price growth has decline to near 10 year lows.
There has been a slight re-bound in the last year, but clearly not enough to warrant a cash rate rise
Click here <a href="http://www.rba.gov.au/speeches/2018/images/sp-gov-2018-04-11-graph1.gif" target="_blank">to enlarge.</a>
<img src="http://www.rba.gov.au/speeches/2018/images/sp-gov-2018-04-11-graph1.gif" alt="Graph 1: Economic-indicators">
"Wage increases around two percent have become the norm in many parts of the country," Lowe said when addressing the Australia-Israel Chamber of Commerce this week.
He said three to four percent increases were the norm for most of the past two decades.
"This change is having a sobering effect on the finances of many households.
"It is also contributing to inflation being low.
"The latest data suggest that the rate of wages growth has now troughed, with a pick-up evident in the most recent quarter. A further lift is expected, but it is likely to be only gradual." 
 
 
 
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