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4 Factors that caused Australia’s affordability ‘crisis’ - featured image

4 Factors that caused Australia’s affordability ‘crisis’

We have a housing affordability crisis! 

Well that’s what the media tells us. Sydney melb

Rising property prices have made it harder for beginners to get into the property market in our capital cities.

An array of contributing factors are responsible for recent pricings boom in Sydney and Melbourne, ranging from foreign ownership regulations to lousy politicians.

And first homebuyers are the worst affected, because as a consequence of the property boom they are grappling with real estate prices that are far beyond their ability to service.

In Sydney and Melbourne, an inner city ‘starter home’ can easily eat through $500,00 to $1 million, which isn’t exactly achievable to those who are just starting out in their career.

And I’m not the first to point out that there is currently property for sale in Manhattan that is more affordable than property in some parts of Sydney…

So how did we get to this stage?

And are first timers really priced out of the market for good?

What caused the ‘affordability crisis’?

1. Cheap and easy credit

Australian banks have been identified as being amongst the main culprits of the situation we find ourselves in today, with capital city median prices equal to up to 10 or 12 times the average wage.

In the past, banks have made investing so easy and obtainable by offering cheap credit with such light restrictions. 

This has undoubtedly helped to fuel investor demand, which has naturally flowed through to property values.

However, actions have already been taken to remedy this issue.

Starting in 2015 the Australian Prudential Regulation Authority imposed significant caps on investor borrowing, with the intention of reducing investment activity.

Their goal was to relieve some of the pressure by stripping demand from the real estate market.

While they were certainly successful in stopping some investors from meeting the market, they didn’t quite stamp out booming conditions altogether, as prices in the Sydney and Melbourne property markets in particular, have continued to soar.

2. A large investment appetite

A high level of interest in investing in the Australian real estate market has been another significant contributing factor to the current affordability crisis.

I feel it’s important here to make the distinction between ‘investors’ and ‘speculators’. economy property market grow wealth house dream first home

Investors are people who have clear strategies and a commitment to investing ‘time in the market’, to help them grow wealth over the long term.

Speculators, on the other hand, review real estate with an eagle eye, to see where the opportunities may exist for them to exploit the market for a quick profit.

Investors have made up more than 50% of Sydney property buyers during this boom, and their interest undoubtedly made things more difficult for the less experienced, less financial first homebuyers they were competing with.

3. Empty-nesters holding on to their houses

Retired Australians who aren’t interested in downsizing their residences are another factor in the current real estate landscape.

It’s been noted that many empty nesters still reside in large homes in well-to-do areas, but many of their bedrooms are sitting empty.

This certainly contributes to issues of property undersupply, which fuelled the great price boom of recent years.

4. An excess of foreign ownership

Yes, I’ve saved the best for last, as international interests have had, by far, the biggest impact on our property markets in recent china market

It is said that Chinese investment in Australian real estate doubled in recent years and though the data is still playing catch up, there is no denying that foreign appetite for Aussie homes has been insatiable.

Foreigners buying Australian properties are an interesting consideration, because their buying habits and drivers are so completely different to ours.

For instance, they don’t necessarily need a tenant delivering them a rental income, in order for their investment to be affordable.

They could leave their investment sitting empty for weeks, months or even years, without it having a huge impact on their finances.

Buying and keeping apartments vacant leads to issues of undersupply and also impacts the rental market.

It’s little wonder that foreign-buyer tax hikes have been introduced in many states, while lenders are growing increasingly hesitant to loan money to foreign property buyers.

Where to from here?

There’s no shortage of people crowing about how difficult it is to get into the property market these days.

But the reality is, we’ve been hearing these same arguments for years – if not decades! 15563628 - house and question 3d image

The fundamentals of the Australian property market are not likely to change in a hurry and although many would like to see the bottom fall out of the market, allowing property prices to crash down to a more affordable level, this is unlikely to happen.

What first homebuyers can do is be proactive about their next move – by reinvesting.

Rentvesting – in other words buying an investment property first, while you continue to rent or live at home, may help you achieve your ultimate goal of owning your dream home in a number of ways, which are outlined here.

At the end of the day, the great Australian dream of owning your own “castle” still exists – it’s just the pathway to reach the top that has changed.

About is a Property Strategist with an accounting background and over 30 years’ Commercial Banking experience. She is a passionate property investor who enjoys helping her clients create wealth through property investment using Metropole’s strategic approach.
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