Sadly and now official, Australia is the world champion in unaffordable housing and just as disturbing, is that both political persuasions have absolutely no idea what is required to correct this. Last week’s interest rate rise by the Reserve Bank of Australia (RBA) identified that today, it independently manages our economy. It broke tradition and “fined” the economy for creeping above the designated inflation rate, better known economically, as “monetary policy” which the RBA monitors independently. Whilst popular belief has it that federal governments actually manage economies today, it is obvious that they simply collect taxes and allocate spending. All of which paints a landscape that identifies Australia as the gold medal holder for an embarrassing housing crisis.

Without a single doubt the most interesting website that addresses world housing affordability is which identified that in 2007 Australians paid 6.6 times the median household income for a median – priced home. “The most pervasive housing affordability crisis is in Australia with an overall Median Multiple of 6.6.” Later in the report “Unsatisfactory Explanations – Various explanations have been offered. Perhaps the most recurring is that higher demand arising from low interest rates has driven up housing prices. Another is that demand has changed radically, such that households clamour for existing housing in better neighbourhoods, with the heightened demand inflating housing prices. Finally, it has been suggested that land owners on the periphery have colluded to inflate prices. Each of these explanations is rendered unsatisfactory, however, by the fact that the housing inflation has occurred only in some markets. Lower interest rates, a desire for better neighbourhoods and the potential for collusion exist in virtually all markets, yet not all markets have experienced the housing cost inflation. The Australian shows that there has been a land supply problem not an inability of the home building industry to meet demand. Nearly 90 per cent of the increase in house costs is attributable to land price inflation, which has risen at double the rate of most escalating component of the Consumer Price Index. A satisfactory explanation must account for the price trends both in markets where housing inflation has not occurred.”

Summary by Nation:

• Australia: The least affordable housing , overall , is in Australia , where seven of eight markets have Median Multiples of 6.0 or above and all markets are rated “seriously unaffordable “ and two markets are rated “ severely unaffordable”. The national Median Multiple is 6.6, more than double the “affordable” standard of 3.0.”

A Recently Developing Crisis

“The housing affordability crisis is of recent origin, having principally arisen over the past decade. Median Multiples of four or more were rare before the 1990s.Median Multiples of double the affordability standard — 6.0 and above were unprecedented. Yet, today, the Median Multiple exceeds 8.0 in a number of markets and is more than 10 in some. Today’s least affordable markets were largely affordable in the not too recent past.

This is illustrated by the situation in Australia. In the not-too-recent past, housing was comparatively affordable in most large Australian markets. In all markets there has been a marked loss of affordability over the past 10 years (Figure 2).

Depth of the Problem

Australia: The cost, including mortgage interest, of the median priced house in Perth has risen more than $575,000 compared to the Median Multiple in 1996. This is equal to 11 years of gross income for the median income household. Perth is the only market outside the United States in which the loss in gross income has exceeded 10 years over this period of time.”

I guess this week’s announcement by John Howard when he pledged to release almost 1000ha of unused commonwealth land for the purpose of housing development to address the housing affordability crisis, has little to no effect. Unless the land is located within popular social demographics with excellent infrastructure, it is worthless.

A quick look at Home Price Guide identifies that Mosman house sales from 1 January 2007 to 16 November 2007 are now at 402 totalling $983,107,000 (new record). This identifies an average house price of $2,514,000 (new record) and a median price of $2,065,000 – also a new record. When you consider that a number of sales are still to be recorded, Mosman has well and truly broken the one billion dollar mark in a calendar year. And to think some believe that more land is required? Now that is just too funny for words! !! Cheers ^__^

Leave a Reply

Your email address will not be published. Required fields are marked *