The Ugly Truth behind Housing Affordability

Housing affordability in Australia

Successive interest rate hikes and surging home prices in 2009 and early 2010 have brought housing affordability close to a record low in the June 2010 quarter.

“There has been a dire lack of commitment in this Federal Election campaign to address the substantial hurdles aspiring home owners face. Helping Australians afford a roof over their head is surely a fundamental responsibility of government” said chief economist of the HIA Harley Dale.Housing Affordability Index 2010

“As housing affordability slips away, so too does the chance for many Australians to realise their dream of owning a home,” Dale added.

The HIA / CBA Housing Affordability Index, which combines interest rates, household income and home prices to determine affordability conditions,  fell by 9.5% over the June 2010 quarter across the nation’s capital cities and was down by 6.7% in regional Australia. The largest falls were:

  • Sydney                      -9.1%
  • Regional Victoria      -9.0%
  • Regional Tasmania    -8.8%
  • Adelaide                   -8.7%

First Home Buyers dilemmaHousing affordablity in Australia

First home buyers are again facing the brunt of surging home prices, rising interest rates and the end of the First Home Owner’s Grant last year. Already facing the prospects of further interest rate rises next month, this group of buyers are often confronted with whether to delay buying, if at all affordable even in the current market which appears to be slowing down after the bull-run last year. Saving for a deposit may sometimes appear totally futile when home prices are surging faster than income growth.

The Ugly Truth

Many first home buyers now comprise X and Y generation young professionals who may have double incomes and a young family. Compared to their baby boomer parents a generation ago where single income was the norm, then surely these couples can afford to buy a first home. However, home prices in Australia have grown at a much faster pace than wages and those home buyers and investors who invested fifteen years ago would have seen solid capital appreciation and soaring prices for their properties.

There is always a lesser urgency to buy for those investors who have already made tidy profits and have the luxury to scout for bargains with some built-up equity in the pocket. In contrast, first home buyers feel the urgency but are yet unable to get into the market due to crippling prices and will continue to be squeezed out of the market.

Investors will continue to scout to increase their wealth and unless first home buyers act wisely, the ugly truth about the rich getting richer and poor getting poorer as in most developed nations will perpetuate.

Implications for first home buyers

Most of the young first home buyers have grown up whilst living with their parents in inner city suburbs in major capital cities around Australia. These choice locations have accorded a certain way of life, familiarity and experience to these young people who would continue to aspire to live close to the CBD and within choice locations.

Unless they receive financial help from parents or join efforts with siblings and friends, it is extremely difficult to find Housing affordablity in Australiaaffordable housing because these choice locations with fond memories embedded are now almost unaffordable if loosely compared to average national wages of about $65,000.

There is no one simple solution for first home buyers. As the most popular locations within major capital cities where supply is scarce and demand continue to be steady and consistent, property prices will continue to rise. First home buyers may have no choice but to settle for suburbs which are slightly further away from the most popular areas and get in first. This may mean longer commuting times, relatively less public amenities and further distances from family and friends. On this same note, I believe that first home buyers cannot afford to continuously “aspire” without a commitment to action, which involves studying and researching about second and third-tier suburbs with the eventual intention of purchasing.

The fundamentals of eventually getting to that choice location have changed and may involve more creative avenues.

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