Australia clearly has a growing affordability crisis

Last week, Terry Ryder once again stressed the argument against issues of affordability, citing anyone seeing a “crisis in affordability needs to get back to the drawing board” and “stop wasting everyone’s time”. 

According to Ryder, we need do nothing to address housing affordability, and the only participants pushing prices higher are emotionally driven second-time buyers who get a little “wallet happy” when purchasing their dream homes.

Although Australia may still possess a good proportion of owner-occupiers to renters – enabling some in the industry to close their eyes to distress calls coming from the increasing numbers locked out altogether – both state and federal governments would be foolhardy to ignore the downward trend in ownership and the reducing pool of first-home buyers.

What may seem in some people’s eyes nothing more than a molehill on a well-trodden historical path is slowly threatening to evolve into a future generation’s mountain.  If we sit back today and tell everyone to “smell the roses”, we risk leaving our grandchildren to inherit a problem unable to be ignored, prevented or for that matter, fixed.

You don’t need to look far for the evidence.  With each census released the level of home ownership slides downwards, the numbers in mortgage stress or struggling to service rising yields increase, not to mention the astronomical rise in residents living in “rooming” accommodation – up fourfold since 2006.  It’s important not to dismiss the factors associated with the above trends because the growing problem – wherever you choose to lay the blame – is undeniable.

It would also be foolish to ignore – as some would have us do – lessons we can reap from the far larger housing crisis occurring in Europe and the USA. We have fared better for a number of reasons; however, this doesn’t dismiss the flaws associated with high levels of debt-financed ownership.

Australia still has a comparatively low number of mortgage defaults, however, the rising numbers suffering mortgage stress are enduring their own crisis trying to balance the family budget.  Once again this is broadly evidenced in ABS data – which goes to substantiate other data proving that housing is increasingly used as a buffer to meet welfare needs, with greater numbers dipping into the pot of reducing equity and reaching retirement whilst still servicing mortgage repayments.  Once again, you don’t need to look far for the evidence – I have cited the data in previous articles I’ve written for Property Observer.

Should our economy go belly-up, there is little protection against the investment risks associated with this trend.  In such a circumstance, the precarious nature of the situation would be fully exposed and felt by a majority – not just the minority we’re being told to ignore.

Policies such as the first-home owners’ grant and negative gearing were put in place under the guise of aiding affordability and increasing the supply of rental accommodation.  However, based on the data above they are, to a large extent, failing to address either.  Proponents arguing that the first-home owners’ grant and subsequent GFC first-home owners’ boost did nothing to fuel an unprecedented boom of price growth during 2009 because it only applied to a minority show a degree of ignorance on the broad effects of market influences.

Certainly, first-home buyers are a minority; however an increased surge at the bottom of any market automatically spurs momentum across the buying landscape as a whole.  The snowball effect witnessed in 2009 was a result of the first-home owners’ boost stimulating a buzz of excitable market activity, along with unnaturally low interest rates, and a consequential jump in the average size of home loans across all price points.  In short – it was fuelled by an impulsive snowball of cheap credit.

It encouraged first-time buyers to rush in – many opted for new homes and off-the-plan developments, and they were given as much as $30,000 by the government for these purchases.  Consequently they purchased into a bubble, and as soon as the incentives ended, prices in the new estates plummeted.  These are the estates Ryder correctly points out to be comparatively affordable.  Of course they are – few want to live there unless there’s a large dangling carrot clouding the way.

I’m still coming into contact with vendors who – riding high on the wave of momentum – purchased into the sparsely facilitated fringe suburbs and four years later continue to fund a mortgage worth more than their principal place of residence.  They are essentially locked into an estate, sparse on amenities, unable to sell because buyers not buoyed by the momentum of a rising market and Mickey Mouse grants take the time to think before they buy. There is no activity to motivate growth or build a pool of equity, and consequently a proportion of vendors are well and truly stuck in their own housing nightmare.