When Less Means More

When Less Means More

Well it is now official! Sydney has the world’s most unaffordable housing market and because (we believe) house prices will show strong gains through to Christmas and beyond, the situation will get worse, before it gets better. Now before you jump to the conclusion that I may be suffering the effects of too much sun (following my recent break) there are some amazing statistics that have recently emerged that more than support this prediction.

Research by the Institute of Public Affairs (IPA) has revealed that the fall of house prices in the United States, now identifies Sydney as the most expensive housing market in the world. United States based consultancy, Demographia, said that following the US sub-prime crisis, Melbourne, Perth, Brisbane and Adelaide are also in the Top 10 most unaffordable cities. This now identifies five Australian cities that today make up the Top 10. The average Sydney home costs over eight times the average income of our city dwellers. The reason why? Simple! Governments of the day keep over-taxing our property markets while production declines yet the Federal government is on an immigration drive. The number of new arrivals to Australian shores in 2007 was 332,000 or 1.6 per cent. This is the greatest addition to the national population in any year in our nation’s history according to Bernard Salt. Mr Salt said ‘The most obvious cause is a record level of net overseas migration. Last year we added a net 185,000 migrants, up from the long term average of 110,000. At the peak of the last recession in 1992 Australia attracted just 52,000 migrants.’

<> Value of dwelling commitments & No. of dwelling commitments

IPA director of the deregulation unit, Dr Alan Moran, said misguided government policies were the culprit of Australia’s unaffordable housing market. He said the cost of Sydney homes was inflated by laws which restricted availability of land, imposed lengthy bureaucratic procedures, increased the cost of building new homes for environmental requirements and charged high taxes ‘masquerading as development levies’. Dr Morgan went on to say ‘These measures are preventing all but the most affluent young buyers from getting a toehold in the housing market. It is clear that regulatory restrictions are fuelling the high cost of building new homes.’

When the Australian Bureau of Statistics released its Housing Finance, Australia, June 2008 on Wednesday this week, its findings all but confirmed exactly what the IPA was suggesting.

Australian Bureau of Statistics – VALUE OF DWELLING COMMITMENTS
June 2008 compared with May 2008

  • In trend terms, the total value of dwelling finance commitments excluding alterations and additions decreased 3.4%. Owner occupied housing commitments decreased 3.6% and investment housing commitments decreased by 3.0%.
  • In seasonally adjusted terms, the total value of dwelling finance commitments excluding alterations and additions decreased by 0.9%. Owner occupied housing commitments decreased by 1.1% and investment housing commitments decreased by 0.3%.

NUMBER OF DWELLING COMMITMENTS – June 2008 compared with May 2008:

  • In trend terms, the number of commitments for owner occupied housing finance decreased by 4.5%.
  • The number of commitments for owner occupied housing finance excluding refinancing fell by 4.8%.
  • In trend terms, the total number of commitments for the purchase of established dwellings fell 4.7% and the seasonally adjusted series decreased 4.2%.
  • In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments increased from 17.3% in May 2008 to 17.6% in June 2008.
  • In original terms, the number of fixed rate loan commitments as a percentage of total owner occupied housing finance commitments decreased from 13.0% in May 2008 to 11.7% in June 2008.

Most interesting to see that the first home buyer commitments are on the increase and this would be based solely on the ongoing rental market increases. Here are the Top 20 postcodes by value – NSW for First Home Benefits from 1 July 2000 to 30 June 2008 CLICK HERE What we don’t know is how many of these ‘First Home Buyers’ are potential mortgagee-in-possession victims given the upward movements of interest rates in recent years.

To further reinforce this, Sydney vacancy rates released in July 2008 show that the situation is getting worse and in parallel to the graphs. The Sydney vacancy rate for residential property within a 10 kilometre radius of the Sydney CBD has decreased from the previous recorded month’s result of 1.4% to 1.2% in July 2008. In comparison to the July 2007 result of 1.4% to 1.2% in June 2008 there has been a 0.2% decrease. Compared to the results of 2% in June 2006, there has been a 0.8% decrease.

A classic case of when less means more! Although on the other hand, the more governments get involved, the less the markets respond – definitely the case today, with our property markets. Residential rents will continue to rise as will property prices until construction bears some resemblance to our strongest ever population expansion. Easy to explain – obviously much more difficult for politicians to fathom (no surprises there) given that they continue to ask for more and deliver less! Cheers ^__^

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