The property pessimists have a field day when the annual Demographia report reminds us how expensive our houses are and how we’re likely to have a property crash.
I understand why this worries some property investors, especially as the media carries this type of report as true and factual. On the other hand I would encourage them to read some of the more sensible commentary from those in the know and who have strong arguments to the contrary.
Now I’m not arguing that our housing is not expensive, but that doesn’t necessarily make it unaffordable.
Yesterday Louise Christopher from SQM Research threw his hat into the ring with some well chose words:
Yes, I agree that Steve Keen has a rather solid point that we still have too much debt in the housing market. Mortgage debt has come down from 160% of GDP to 150% but it needs to come down further before it is in a relatively safe position.
And yes, I agree there are affordability issues at the lower end of the market for those on lower than average income levels.
However, two wrongs don’t make a right. Flawed studies on affordability such as the annual Demographia survey do not enlighten us. And just very quickly, the survey is flawed because:
– The world is made up of more than just six countries
– Income levels are not consistently compared across the survey cities
– Relative size and quality of properties does matter
In this regard property writer Terry Ryder absolutely nailed this piece last week –
I don’t regularly agree with Terry on his opinions, but in this case, I couldn’t agree with him more. Other than I believe there are some journalists who are clued up and do have the character to avoid this rubbish. Just not as many as we would both like.
Sadly, it seems the flawed survey has fallen on deaf ears across the Tasman, where it appears the government of the day has jumped at the shadows –
Affordability in Australia is naturally an emotional point and its difficult for a reasonable person to get down to some basic facts without all the emotion and disinformation attached. I would love to write out a detailed, factual case , but there is just not enough space in this newsletter to provide a proper argument either for or against.
And my focus is on providing credible market information.
But very quickly, on the data that we monitor – particularly our rental vacancy rates, there appears to be an issue at the lower end of the market. When one is recording vacancy rates at just 2% and in many outer city regions regions vacancy rates at just 1%, that’s a problem.
For those who like to doubt our statistics, I can only point you to rental growth rates as measured by the Australian Bureau of Statistics via their CPI data which confirms rental growth in excess of inflation for the past five years now. And the rental series we are about to release backs this up.
So fundamentally there is a problem that needs to be addressed at the lower end of the market and it is best addressed by encouraging supply of residential real estate while keeping housing speculation somewhat in check. No doubt a challenging task!
That all said there is another twist to this argument and that is what was covered over the weekend by Fairfax media – the issue of affordability verses status.
Do we have an affordability crisis all because a certain percentage of the population cannot afford to buy where they want to live?
Do we have a right to complain and blame our leaders all because only a minority of us can afford to live and buy in the most desirable and sort after locations?
Do we have a right to scream about an affordability crisis when perfectly good suburbs are rejected based on status value alone?
In my opinion, no we don’t!
For those of us on above average incomes, I am sorry but where there are perfectly reasonable choices available for you to either rent or buy, and you choose not to because it doesn’t fit with your lifestyle, this is your problem and your problem only.
Even on above average incomes, lifestyle choices are still limited and unlimited wants can not be all satisfied!
For those of us on below average incomes, your concerns of finding a home are most certainly valid and quite clearly the solution here is a combination of assistance by addressing the supply side of real estate at the affordable end as well as doing all one can to get skilled up and getting yourself into a better financial position.