Fixing the affordability and availability crisis

Proportionately, Australia’s residential property market is worth around three times more to the Australian economy than to the US and UK economies.

For most Australians their home will be the most important asset they own, and the single most desirable asset amongst those who are yet to step on the property ladder.

However, the property ecosystem is broken and fragmented, with affordability spiralling out of control and accessibility lower than ever.

The trouble is, if the goal gets too far away, people will stop considering homeownership as a viable option.

Making the dream of home ownership more affordable and accessible for everyday Australians requires a holistic approach, involving all stakeholders in the property ecosystem:

• the governments who set policy,
• the financial institutions that provide credit,
• the real estate agents who support customers in the journey, and of course,
• the individuals who are buying the property.

It’s all about supply. Well, it’s not that simple.

When state governments understand what type of supply is needed and where it’s needed - based on what consumers are searching for - they can set policies and incentivise developers to deliver more affordable and accessible properties.

But it’s important to stress affordability does not mean reducing the value of someone’s property from $ 1.3 million to $ 1.1 million, affordability is introducing an $800,000 entry point to create a wider range of accessible options.

Not all states are adopting technology and data equally to optimise this process.

In New South Wales, our data shows there is high demand and low supply of, for example, land lots of 3-400 sq. metres in the central and outer Sydney suburban areas.

In reality, land lots of 5-700 sq metres are being developed.

Supply that is misaligned with demand doesn’t solve issues, it exacerbates them.

Victoria, Adelaide City Council and now Western Australia, have adopted Domain’s VM Online platform to automate and manage land valuations for close to 50% of all land holdings across Australia.

These states are able to work with local councils to understand the most significant asset under their stewardship, land, and determine and implement policies for its best use.

Technology is the backbone to identifying, implementing and managing supply-related policies that could have a real impact on issues that matter to Australians like housing availability, access and affordability.

This technology is also critical to address another major factor impacting affordability - property transaction costs like Stamp Duty.

Stamp Duty adds two years to the average first home buyer's time to save for a home deposit

Domain research shows that while the median property in Sydney has increased by 280% over the last 20 years, stamp duty has increased by 408%.

This is simply unsustainable and is an upfront barrier pricing many Australians out of owning their own homes.

However, given Stamp Duties, land taxes and rates are so critical to state government and local council revenues and the provision of services, it is a challenging issue that can only be addressed through investing in improved technology and data to support the right transitional policies.

Data has an important role to play with financial institutions, too

Millions of Australians are expected to move from fixed-rate to variable-rate loans in 2023 or 2024.

After 11 consecutive interest rate rises, it’s no surprise many Australians are anxious about their ability to meet repayments once their current fixed rate ends.

Unfortunately, it won’t be uncommon for consumers to roll off onto rates three to four times higher than they’re currently paying, adding substantially to their monthly repayments and ultimately thousands over the life of the loan.

Once again, the conversation comes back to affordability and data

The string of rate rises has led to a number of “mortgage prisoners”, those who are left unable to refinance with another bank - and to a potentially more competitive rate - because of the serviceability buffer being added to determine the applicant’s borrowing capacity.

In a world where data availability and real-time decision-making have exploded and changed the way we experience so many aspects of our lives, banks - even today - still struggle to approve mortgages to customers they've had relationships with for decades, within a week or even two.

Banks don’t have the data, process or confidence to quickly and efficiently approve the right loans to the right borrowers.

The next phase of digital transformation in the banking industry is about integrating data automation and machine learning to create more efficient, contemporary, data-driven models to meet consumers’ demand for instant and accurate approvals while balancing credit risk and banking system stability.

If traditional banks can use data and technology in the same ways to improve their ‘speed to yes’ and the accuracy of their assessments, they can better support their customers - you - at the same time lowering the cost of acquisition.

We’re facing an affordability and accessibility crisis sitting on the top of a fixed-rate loan cliff.

Kicking the can down the road on these issues just makes them harder to solve.

Believing it is “all about supply”, or “all about demand” will not fix the problem - only a holistic approach involving all stakeholders in the property ecosystem, underpinned by technology and data, will.

About Jason Pellegrino Jason Pellegrino is Chief Executive Officer & Managing Director of Domain Group. He was previously Google’s Managing Director Australia and New Zealand and a member of the Asia-Pacific regional leadership team. Prior to Google, Jason worked in several roles over 15 years spanning corporate strategy, mergers and acquisitions and finance at Dakota Capital Partners, LEK Consulting, PepsiCo International and KPMG. He holds a Bachelor of Commerce degree from the University of Wollongong and an MBA from London Business School.