Is Australian housing really unaffordable?

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!


End notes

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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.


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'Is Australian housing really unaffordable?' have 4 comments


    February 8, 2013 Billy

    This can definitely be a touchy subject! I personally don’t believe the property market on the whole is as overpriced as these reports make out.

    Most people who bought 5-10 years ago have the option of staying put and paying off a cheap mortgage and have a stack of equity (relative to todays prices unless they overpaid) or they can sell and upgrade and pay off a new mortgage which is often similar to the same size as the original one they took out previously, but because of wage increases/inflation they can pay this off faster than before, and so the cycle goes on.

    The only groups which are hit are the first home buyers starting out, as they are usually the most sensitive to price fluctuations, interest rate changes and generally have less resources to work with as they are at the beginning of thier careers. I understand in part the plight that these people have to go through (up until lately having to face relentless price growth whilst saving for a deposit) however if they save up for a house earlier in life instead of buying that nice new car or travelling to Europe, then things might be different for them.



    February 8, 2013 Brian Stinson

    The discussion about affordable housing needs more facts and less emotion. Many people make the mistake of talking about affordable housing and the medium house price in the same sentence. As the medium house price is a middle number of house prices it would be more reasonable to assume that a home buyer lives in a medium priced house at the medium time of owning a house. If the average time a family occupies a house is say 40 years then the medium time is 20 years. That means it is reasonable to have a medium priced house after 20 years of home ownership not your first house. This is very attainable. A recent look on showed over 7000 houses and units in WA under $350k. Well below the medium house price. If first home buyers set their sights realistically there is plenty of affordable housing. Oh and buy the way you have to make some sacrifices along the way as home ownership is a privilege not a right.



    February 8, 2013 Dane the Plannr

    A nice article with some valid points. One thing that really bugs me though is that housing affordability is about so much more than quality of housing, size of housing, income and housing cost. Personally I don’t think either you or demographia understand the dynamics of housing affordability. One serious oversight of both is that they say nothing about the level of services and amenities available to residents. For example, proximity to employment, shopping and education; the availability of public transport; the quality of services offered by the local government; interest rates; government monetary policy; etc. All of these have bearing on housing affordability.

    Furthermore, both this article and demographia are missing some important points in regards to measuring housing affordability.

    Firstly, the term ‘affordability’ attempts to create a connection between a number of incongruent issues: conditions influencing the supply of new and refurbished dwellings; the ability of households to finance housing; the distribution of housing quality; the distribution of housing prices; the distribution of income; and the decisions that households make in relation to the quantity of housing consumed relative to other expenditures. As such, the definition of housing affordability is ambiguous at best and is therefore exceptionally complex to conceptualise.

    Secondly, there are a number of methodological constraints inherent in the measures of housing affordability outlined by this article and demographia. Broadly, these constraints can be grouped into four distinct categories: appropriateness of data; household dynamics; the dynamics of housing affordability; and the inability to quantify all relevant factors relating to affordable housing. In terms of the use of appropriate data, the key constraints specifically relate to the various strengths and weaknesses of the data used. For example, the Australian Bureau of Statistics Census data only provides gross household income rather than disposable income. In regards to household dynamics, the constraints specifically relate to the distribution of household income within the household itself. Furthermore, there is no account for the contribution each member of a household makes to housing or other household expenditure. For example, there may be variation in the affordability of housing between different members of the household based on the dynamics of the household. This is not accounted for in any of the measures. In terms of the dynamics of housing affordability itself, the specific constraints relate to the conceptualisation of housing affordability and the complexity inherent in its definition and understanding. The single greatest constraint is the limited capacity for the various measures to aid in understanding how affordability is different for individual households at specific points in their life-cycle (i.e. DINKS, divorcee, retired, etc).

    Furthermore, financial constraints and benefits of home ownership were only a single factor driving the homeownership aspirations. The emotional, social and employment drivers of housing aspirations are not accounted for in the measures of housing affordability . As such, these measures have a limited ability to improve the understanding of housing affordability.

    Rant End.



    February 8, 2013 Bob the builder

    I recently read an article on how lucky Australians really are financially. It stated that the average Aussie is approximately four times more wealthy than the average American. Storing this wealth in an appreciating asset that isn’t taxed (our own homes) may be evidence that the average Aussie is four times smarter ( with their money at least ). Four times wealthier equals four times better house ! Maybe Demographia isn’t Australian so they are four times less likely to be able to afford an accurate calculator.


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