An update from Managing Director, Daryl Borden
We need to give homeowners a reason to look regional
Buying a home is hard.
And it always has been. Within every decade since World War II generations of aspiring home owners have decried their plight. At various times, high interest rates, restrictive credit policies and building supply issues have all impacted the ability for us to reach the great Australian dream.
Every short term solution to each generation’s housing crisis has had a flow on effect, paradoxically creating another problem for the next generation.
In the 1950s and 60s Sir Robert Menzies recognised the benefits (social and political) of government assistance. His housing policies dramatically improved home ownership levels. By 1989 home buyers were served a very unpalatable interest rate of 17%.
Remember when the bank would not accept a wife’s income as valid? Remember no loans over 80% loan to value ratio (LVR), and credit rationing stopping the bank lending to you?
These problems were solved or evolved, and buyers continued to enter the market. More buyers, more demand, higher prices – leaving us with our current problem of sky high prices out of reach of many.
However, I put to you the prices across Australia are not actually exorbitant. Low interest rates are generating more demand, which is contributing to high prices. As a percentage of disposable income, housing repayments Australia wide right now are equivalent to a 30-year average. It is the extreme demand in eastern seaboard cities which is the problem.
Australia is in the extraordinary position of having almost 50% of its population living in the three major cities of Sydney, Melbourne, and Brisbane. By comparison, the UK accommodates 23.1% of its population in its largest three cities, USA only 4.6%. Australia’s population is meagre compare to those two nations, yet Melbourne’s population of over 4 million would make it the second largest city in either of those nations.
Demand and supply ultimately set housing prices. Australia does not have a shortage of land. What we do have is a shortage of accommodation where people want to live. It is Melbourne and Sydney which are expensive, not the nation, because so many want to live in those two cities! Governments have failed so miserably with decentralisation policies in the past that none have the courage to discuss it. That must change.
We need to give people reasons to buy in regional areas. That means creating jobs in those areas, and reviving the ‘very fast train’ project to enable commuters to live regional, while within reasonable commute times to city jobs.
Australia’s population is increasing by 350,000 p.a. We cannot continue to house the majority of our people in Sydney and Melbourne, as is currently the case.
Increasing urban density helps, it is not a final solution. Suggestions of property share ownership, or of access to superannuation, will only fuel the next round of price increases. Negative gearing is in place for the purpose of assisting in provision of rental properties: Its removal may lead to a short term drop in house prices, but the flow on effects to renters and to governments forced to step up government housing projects would be calamitous and felt for decades.
There is only one long term solution to the affordability crisis; to move demand for housing to regional areas where affordable housing can be built.
Daryl Borden, Integrity Finance Australia, Ph. 03 9511 8883 ACL 392184