Property experts claim Australian housing is not as unaffordable as you think

Australian housing is not as unaffordable as most analysts suggest with the market boasting an internationally high rate of ownership and low rate of mortgage defaults, a new report argues.

But despite the misunderstanding of the market’s affordability, report author and Rismark managing director Christopher Joye says the Federal Government should do more to reduce burdens on property developers in order to ensure housing is more accessible.

Joye says new data compiled by the company in conjunction with RP Data reveals the national median dwelling price is $371,000 – “substantially less than the $500,000 figure often quoted in the media”.

He says this, combined with the fact 40% of housing lies outside of metropolitan areas, indicates a higher affordability rate than previously thought.

Additionally, he says the country’s dwelling price to income-ratio is only 4.1 times, “less than half the seven to eight times often quoted in the media and by economist, and implies that Australian housing is not overly expensive by international standards”.

Joye says many housing reports only report figures based on average individual wages, not household income which could include many different income streams including regular work wages, investment dividends and interest.

“The message is that people get housing very wrong. When you actually objectively look at the national median price and the national disposable household incomes, people confuse the analysis. Household incomes are higher than you would expect.”

He points to figures which reveal the median disposable household income was about $90,000 in June 2009, compared to the median housing price of $371,000. And while Joye says the median housing price for capital cities is about $40,000 higher, he maintains “housing does not appear to be overly expensive by international standards”.

Additionally, he says if housing were too unaffordable the country would see a lower rate of home ownership than the 2006 rate of 70%, along with a higher rate of defaults than the current 0.66% of the five million borrowers on record.

“Even when mortgage rates hit 9.6% in 2008, house price falls were only modest. If Australian housing was unusually expensive, you might expect to see low ownership levels, high default rates, historically poor affordability, and weak demand as manifest in negative price growth. But we do not.”

But there are still problems in the market, Joye says. The dwelling price to income ratio has grown from 3.4x to 4.1x over the past decade, reaching a high of just over 5x during March 2004.

Additionally, Joye says capital city housing prices are higher than properties in other regions, but suggests the Federal Government needs to attack tax structures in order to make housing more affordable.

“A major point of this report is that up to 30-40% of the cost of a new house in Sydney is accounted for by local charges, so what we’re actually seeing is a rise in those charges over time. Because of these charges, it’s very difficult to find an inner city house below $500,000, which is well above market price.”

“These taxes and charges are a disincentive to suppliers, and it gives them reason to build very expansive, prestige property in the millions of dollars but not the $200,000-300,000 houses that are needed.”

If taxes are reduced, Joye says more affordable housing will be provided to the market, eventually impacting prices.

“First, they should relax density restrictions in existing urban areas where high housing demand exists. Bringing new supply online on the fringes of cities, which is far removed from key labour markets, has weak infrastructure support, low consumer demand, and much higher environmental impacts is emphatically not the answer.”

“Second, the Henry Review should advocate substantially reducing the tax burden on the supply-side of the housing market, which will help reduce its cost of production and encourage investors to commit scarce capital that is competing with the resources sector to the supply of lower-cost shelter.”