Housing Affordability! The issue is constantly highlighted by the Australian media and so called "experts"! What are the solutions?

Firstly, lets look at some fundamental differences between Australia and many other parts of the western world and lets also agree, that we can't argue that capital city prices are not only expensive but unaffordable for many!

"The big difference between Australia and most parts of the world is that we are a highly centralised society with only six states and two territories.  60% of all home sales take place across 0.5%  of the land mass.  Based on ABS figures to June 2009, the capital cities account for an estimated 14,039,373 persons of a 21,955,256 persons nationally.  This means that about 64% of the Australian population lives within the capital cities with an estimated 55% of the population living within the four largest cities (Sydney, Melbourne, Brisbane Perth).....in the US for example "...the 50 largest cities account for only 15.5% of of the population. Sydney makes up an estimated 20.5% of Australia's population...In Germany with a population of 82.4 million people, the capital Berlin accounted for 4.0% of the countries total population, whilst the 20 largest cities accounted for 17.8% of the population...in London, 14.6% of the total population lives in London, the 20 largest cities accounts for 27.7% of the population..." (RP Data, June 18, 2010 - Housing bubble? Not here, by Cameron Kusher)

Ok, enough statistics! They are constantly thrown around and still do not provide solutions, just the opportunity for more analysis paralysis, but it is interesting to see how dependent we Australian's have become on the major cities we live in and have done so since we arrived here and how we continue to be...

Once again affordability - or lack there of; has the loudest voice in the media, but no mention of it by either of the wood be Prime Ministers in the recent Non Election campaigning!  Property experts as usual offer up their great insights as to the reasons and the same old predictable cause is offered up - supply shortage (this is a big symptom, but not the only one, it- as it most often always is; is the some of the parts that makes up the whole) ! Then of course, there are the great financial minds - the Guru's; who preach the over value and unsustainability of Australian house prices, compared to the rest of the developed world. They too are invariably home owner's and I am sure are grateful for the absence of tax being payable on any capital gains and many, probably live in the more affluent suburbs of the major capital cities, where capital gains  - generally, outpaces the more broadly quoted median gains/falls.

Surely they don't want the value of their homes to fall and what good does their elevated view do for most who aspire to own a home, or those who indeed do? Does the opinion (based on selective data) that property is as much as 40-50% above fair value, help these indebted home owner's in the "mortgage belt" - who represent 60% of Australian's? And what if they are right, what difference does it make, it doesn't offer a solution to the issue of now, is it just to show how clever they are? 

All markets correct or fall, the property market is no different and the fact is, it is Australia's largest asset class - approximately 2.5 times the size of the stock market, and directly or indirectly (rightly or wrongly) one of - if not, the largest employer in Australia.

There are those too who claim to have crystal balls and can see around corner's - pointing to the infallibility of Australian property.  We are advocates of property obviously- it's our business, but we have and do, always consider buying "well" versus buying "right" (and this is not semantics) as well as looking at the fundamentals (which are most often overlooked) in balance with the technicals - or economics; tempering any purchase with the not so "common" common sense.

In considering the realities of the ongoing affordability "crisis ", we need to consider all the dependent variables - and there are many, before I continue, I don't believe there is a silver bullet - stakeholders in the housing industry are nearly always going to look outwardly to point the finger of blame elsewhere, instead of shouldering apportioned responsibility, mistakes or even - "we didn't think of that" and we also need to deal with realities. "If" is possibly the biggest word in the dictionary and no amount of wishing the past to be different is going to alter the realities of the present; so lets put that aside too.  Accountability is a long forgotten virtue in the politicised 21st century - the point that we are at now didn't happen over night but it doesn't change the reality one iota!

Home ownership (in my view) is not a right, affordable housing is though - this doesn't imply ownership.  It is every Australian's right in my view to have a roof over their head and the issue of affordability is not limited to home ownership, the issue is not complex (to over simplify it) but it is erroneous and stretches across private and public housing, in all its guises.


For the purpose of this article, we have elected to look at the issue that is highlighted most often - home ownership affordability. So what can be done about it?  Do the individual "experts" want to be right or be apart of a "solution"? As experts, these people across the political and industry landscape, have the ability to get the ears of those who can genuinely bring about change - and of the changes that we are proposing, some can happen right now, others may take more time, but all would require an adjustment - like the fact that petrol will most likely, always be over 100cents/litre, even when the cost per barrel halves - during the GFC for example and there will be some perceived pain perhaps.


Before we embark on solutions, perhaps we can look at what's our part in all this as individuals?  We are part of a community that has a collective conscience otherwise knows as - Australian's.  If we focus on the problem, the problem gets bigger, if we focus on the solution, the solution gets bigger.  Lets also leave the political "blaming" out of it too - it hasn't, doesn't and won't provide a solution, it merely breeds perpetual apathy and negativity.


In my experience, anything that is worthwhile; and its also been mine to observe, has not come with out sacrifice, some say pain, so when was it that we started to think we didn't need to sacrifice anymore?

In dealing with housing affordability (or unaffordability) - as individuals (the things - we can control), there are a few things we could do and take responsibility for (and these are not the responsibility of lenders, selling agents or governments);

1. Save a deposit of 20% (up until the 90's this is what was required)
2. Pool resources and look into co-ownership 
3. Borrow what can be afforded to pay back - be responsible 
4. Lower expectations of where you live and what you live in (don't worry about what other people think)
5. Buy elsewhere and rent where you want to live, we don't need to own our own homes if we can't afford them, there will always be people who need to rent. Think of the investment as a forced savings plan that will deliver - moderate compound growth. It isn't a "right" to own a home. Who's dream is it - "The Great Australian Dream" anyway?  It was an idea (the simple version) and a legacy of the post WWII government to get the economy going...
6. Individuals should know what they are prepared to pay for a property and set their budgets accordingly - agents and auctioneers are not holding guns to anyone's heads - everyone has a choice.
7. Stop focusing on the things we can't control and are powerless over and look at those we can control.

Looking at the solutions, there are some that can be delivered right now, others over the mid-term and for the sake of grace, others that are more longer term.


Short-term Solutions (before the end of 2010):

1. Remove the FHOG, it was supposed to compensate for the introduction of GST (which is only collected on new dwellings anyway) and it has actually pushed prices up.
2. FHO Stamp duty to be reinstated although discounted to FHB - 50% of the duty payable upto a purchase price $600,000. In 2008, there were 135,000 FHB who didn't pay Stamp Duty Nationally The National March median house price in 2008 was $459,216.00.  The most affordable state for stamp duty is QLD, based on a purchase of $459,216.00 the stamp duty forgone was $8,275.30 - if this was applied across all FHB - Nationally for that year (at the lowest rate) the minimum stamp duty revenue missed out on was $11.172 billion for 2008 alone. That's a lot of health, education and roads funding missed out of.
3. Removal of GST on new dwellings.  The June 2010 National median house price according to APM was $558,400.  Bases on this as the median for a new dwelling as well, $50,763 of this is GST and further, stamp duty is calculated on the house price including GST - a tax on a tax.

 Mid-Term Solutions (by the end of 2012):

1. Look at the land tax impost, a significant reduction can be accounted for by the increase in stamp duty revenue, and flow on effects from the removal of stamp duty as state and local government receipts will increase off the back of increased building activity.
2. Planning - the application process needs to be streamlined - time is money and developers have holding costs to consider before they even embark on the process, the longer it takes to approve the more expensive it for them to deliver a finished product.  Speed to market will deliver new dwellings sooner, increase jobs, improve productivity and bring government revenue forward...

Long-term Solutions (2011-2013):

1. Future Fund should invest in public housing as part of their investment mandate and/or, provide funding directly - or wholesale, to institutions such as credit unions, to be mandated to lend to low income earners for housing on steeply discounted interest rates (this to be means tested of course)  .
2. Infra-structure bonds (as already proposed) be issued to raise money for major projects at a federal & state level to shift some or all of the burden from the public purse to bring forward the public works program.

To reiterate, I know there is no silver bullet and the above mentioned is not a cure, there are most certainly other things to consider as well, but before anything can change or will change, it starts with individuals and then the reality of dealing with some uncomfortableness from some long overdue decisions that need to be made by our leaders for the greater good not for the current term of government be it at the Federal, State or Local level.

I welcome any and all, thoughts and comments? 



Author: Stuart Jones