Well thanks Demographia for rubbing our noses in it again. We just all love your annual reminder about how expensive our homes are down under.
But is your analysis correct? Just because you have now done nine of these reports and they get international exposure doesn’t mean they are correct.
I am coming to the conclusion that there is an inverse correlation between the amount of airplay a topic gets and the actual truth.
For mine, there are some serious flaws in the Demographia reporting.
- Their work doesn’t take into account equity, which on average exceeds 60% across all Australian home owners (including investors) and is as high as 80% for owner residents, excluding recent first home buyers of course.
- The income data is questionable as it is ABS based. The 2012 Centus results show that 11% of Australian households don’t correctly fill in the income question at census time and ATO figures show an average household income 12% higher than what the ABS reports. Why? It is harder to lie to the ATO. Also, I am pretty sure (based on past Demographia studies anyway), that gross rather than net incomes are used, which would also be misleading.
- Importantly, there is no capital gains tax on your principal place of residence in Australia – so it is a big tax incentive and wise investment strategy to build wealth in Australia by improving one’s home, reselling it and doing the same again. This increases the value of homes across the country beyond the ‘standard’ multiplier of household income or weekly rent. Many countries tax capital gains on owner-resident homes, which limits improvements and hence price growth.
- As well, regional areas like the Sunshine Coast support a high proportion of semi and fully-retired households that earn less (via traditional means) but own expensive properties – so the measure of wealth is inaccurate.
- It does not take into account the type of dwellings – a 250sqm detached house on 800sqm of freehold Aussie dirt, is not the same as a two-bedroom 62sqm Hong Kong apartment.
I, for one, believe that when you factor in the increase in housing size and improved quality of our housing stock against end prices, housing affordability has improved dramatically in Australia.
The similar argument applies to downtown apartments, which more often than not, are in places which are increasingly attractive to live in. In short, the increase in density (and price points) is substantially offset by the quality of neighbourhood.
Value for money is a much more relevant measure here than just the end price.
Now for those who want to argue that housing is so unaffordable here, please explain to me these trends:
- One in every ten private dwellings across Australia – that’s 935,000 properties – are not used on a regular basis at all. What is even harder to believe is that the numbers and proportion of unoccupied private dwellings have increased across Australia over the last five years. There were 830,000 unoccupied dwellings in 2006.
- There are now 3.1 bedrooms per dwelling, which continues to increase and is up by almost a whole bedroom since the late 1950s. More telling is that today there are 2.35 million homes in Australia with four or more bedrooms, which is up from 2 million similarly sized private dwellings just five years ago. Today, one in three Australian dwellings holds four or more bedrooms!
- Yet, three out of five (57%) of our lone person households live in detached housing, whilst four out of five (78%) of our couple-only households do. Most of these single and couple households live in three or four bedroom properties
These trends suggest to me that the Australian housing market isn’t overpriced at all – in fact, quite the opposite. Yes, many want too much for their homes and many new projects are overpriced. In both instances, unless value for money is actually offered, the property in question usually doesn’t sell.
For mine, Australia’s housing market – when measured correctly and accounting for the improvement in the stock over recent times – isn’t overpriced at all.
And if you need more evidence, jump on a plane and visit Detroit, Atlanta, Cincinnati & St Louis (the four most affordable locations according the Demographia’s latest study) and see what you get for your money. I suspect it isn’t a hell of a lot.
Of course, Demographia will issue the same findings next year too. And yes, they will get national coverage. Breakfast shows, in particular, seem to love this shite!
Got something to say? Give us the goods from the front lines – let us know what’s happening out there via twitter –@michaelmatusik #propertypulse. You’ll have about 110 words after these two handles to share your comment/property news. Or listen to me on Kevin Turner’s Real Estate Talk.
Michael Matusik is the director of independent property advisory Matusik Property Insights and writes the Matusik Missive which is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.