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How unaffordable is Australia property?

Each year the international Demographia report ranks Australian as amongst the most unaffordable countries for property.

Recently leading property commentator Michael Matusik had some very interesting thoughts on this – in his weekly commentary. He said:

Well thanks Demographia for rubbing our noses in it again.  We all know Australian housing is unaffordable, so we could do without the annual reminder.  We would do something about it if we could, but doing such requires government action, which we all know isn’t going to happen.  Well not with the current group of cretins at the wheel.

But low affordability doesn’t mean housing bubble as too many journos are inclined to think.  Residential property downunder is overvalued, no doubt, but assuming people keep their jobs and continue to pay their mortgage then a slow house price deflate (in real terms) is the most likely outcome.  House prices are unlikely to grow much (for the vast majority of dwellings) until wages and rents catch-up – which, unfortunately, could take up to a decade.  This happened in the 1990s and history is likely to repeat.

Whilst it is point scoring, it is worth highlighting out some flaws, in the Demographia reporting.

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.

  • The 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 – one in eight do not 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, so therefore recent tax cuts are not factored in either.
  • Also 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.

No doubt the creation of affordable new homes is an issue and a major one facing the country.  But unfortunately its resolution remains largely within the control of governments

What needs to be done in this regard includes:

  •  Expedite rezoning, approvals and development timeframes.
  • More judicious application of taxes – remove GST on new home construction; annual infrastructure charges over the life of the project rather than existing user-pays-upfront model and reduction of stamp duties on newly constructed dwellings.
  • Provision of crucial infrastructure in advance of need.
  • Decentralising the workforce and population to regional centres.
  • Matching migration supply to jobs needed.

So nothing much will change, resulting in people moving less, more renovating in place and fewer property transactions as people’s priorities change.  Not a bad thing really except if you make money out of real estate transactions and new development activity.

Oh, but one thing is certain, Demographia will issue the same findings next year too.

This report is republished with permission of Matusik Property Insights.

Source: Matusik Property Insights



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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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