Tag: housing affordability

Housing Affordability Eases for Some

The HIA says that despite the poor levels of housing affordability there are signs of improvement for home-buyers. Investors are not so lucky.

“The HIA Housing Affordability index for Australia improved by 0.5 per cent in the September 2017 quarter but still remains 4.4 per cent below the level recorded a year ago.

“Housing Affordability has been deteriorating in Australia for decades, particularly in capital cities, as demand for new housing greatly exceeded the supply.

“Recent interventions by the government, through APRA, to curb growth in investor activity may have improved affordability for owner-occupiers.

“As a consequence of this intervention it appears that the market has responded with higher mortgage rates for investors and eased rates for owner-occupiers.

“This has had the unintended consequence of improving housing affordability for owner-occupiers.

“Irrespective of intent, this is positive news for owner-occupier buyers in the affordability equation.

The HIA Affordability Index has been produced for more than 17 years using a range of recent data including wages, house prices and borrowing costs to provide an indication of the affordability of housing.

A higher index result signifies a more favourable affordability outcome.

“The Report’s regional analysis demonstrates the substantial differences in affordability conditions around the country,” added Mr Reardon.

“Sydney retains the mantle as the nation’s least affordable housing market despite the affordability index showing a modest improvement in affordability during the quarter. It still takes twice the average Sydney income to service a mortgage on a median priced home in Sydney while avoiding mortgage stress.

Brisbane, Adelaide, Perth and Darwin all recorded modest improvements in affordability in the September quarter. Melbourne, Hobart and Canberra each recorded a modest deterioration in affordability during the quarter.

Mounting housing stress underscores need for expert council to guide wayward policymaking

From The Conversation.

A recent policy pledge by Shadow Treasurer Chris Bowen has given fresh heart to campaigners for the restoration of the former National Housing Supply Council (NHSC).

The Abbott government axed the council in 2013. With housing stress intensifying across much of Australia, a reinstated and revitalised council could strengthen policymaking in this contested area.

NHSC Mark 1

The Rudd government created the NSHC in 2008. The council’s role was to put housing policy on a sound base of evidence. It was guided by expert members drawn from the construction industry as well as senior planning, social housing, economics and academic ranks.

The council provided ministers with housing supply and demand estimates, projections and analysis. It also investigated the influence of infrastructure investment, housing-related taxation and urban planning. Its remit included a focus on:

… the factors affecting the supply and affordability of housing for families and other households in the lower half of the income distribution.

Importantly, NHSC reports explicitly recognised that untargeted supply-enhancing measures were not the sole answer to easing this group’s housing stress. The council also examined influences on housing demand. These included the price-stimulating effect of tax incentives for residential property investors.

The case for restoring the NHSC

Unaffordable housing and homelessness of course remain burning issues in national media and policy debate. Across most of the country, these problems have mounted since the NHSC’s demise.

In Sydney, for example, median house prices have climbed 40% since 2013. Rents are up by more than 12%. Average New South Wales earnings, however, have risen by only 8% in this time.

From 2011 to 2016, census data show that, nationwide, the proportion of tenants having to spend more than an “affordable” amount on rent rose in every state capital other than Perth. And latest published statistics reveal homelessness service users rising at 5% per year (2016 census data on this are still awaited).

Housing affordability is subject to complex influences – regulatory, economic, demographic and other factors. Most of these transcend state and territory boundaries, and many call for improved data. As a landmark official report acknowledged only last year, the lack of information essential to underpin housing policymaking is highly problematic.

 

Overcoming these data deficiencies would be central to the mission of a restored NHSC. This includes metrics on the supply pipelines of serviced land, dwelling demolitions and underused housing.

In its day, the NHSC drew support from many quarters, notably spanning the property industry and the affordable housing lobby. Leading property sector groups lamented its abolition. And, alongside Bowen, the Property Council of Australia is among recent advocates for NHSC reinstatement.

A government wanting to beef up its understanding of this area could assign a wider and more analytical role to other official data-gathering or research bodies. But neither the Australian Bureau of Statistics nor the Australian Institute of Health and Welfare possesses the in-house policy expertise or industry-connectedness to provide a credible alternative to a restored NHSC. And the Australian Housing and Urban Research Institute (AHURI) is not set up for this role.

A reinstated NHSC can be improved

A new NHSC should be established by statute, not just by executive decision. This would strengthen its hand in obtaining required data from possibly reluctant state and territory ministries. In addition, this would provide more protection against arbitrary abolition by a future federal government in “wrecking mode”.

It will be vital that a reinstated NHSC’s remit includes a more granular, localised focus on supply and demand imbalances. Housing supply is only productive when suitably located in relation to jobs, infrastructure and services.

Housing provided needs to be of a type and configuration that matches demand, and at a price that people in that locality can comfortably afford. Property market conditions may be quite diverse even within a single capital city. Oversupply in one part of a metropolis can co-exist with shortages elsewhere.

Beyond calibrating overall housing demand and supply, the reborn NHSC must monitor the supply-demand balance by market segment, including low-cost rental. Similarly, the council’s former brief should be extended so it specifically assesses Australia’s unmet need for social and affordable housing. That’s both the current shortfall and the newly arising need predictable within a given period.

As recently instanced in Wales and Scotland, methodologies of this kind have a long lineage in UK housing policymaking. While Australia has residential stress metrics galore, none provide an ideal basis for government-supported rental housing construction. Such a program should be a central plank of national housing policy.

As Bowen has argued, a restored NHSC can also help hold states and territories to account for their supply commitments under the new National Housing and Homelessness Agreement. This is currently under negotiation between the two levels of government.

Reinstating the NHSC in a revitalised form would help government make more rational and informed policy choices on which supply and demand levers to pull to improve housing affordability. This is especially important for the lower-income renters who are doing it tough in cities like Sydney and Melbourne as well as in many other areas, such as the resort settlements along much of the east coast.

Stronger, better-founded evidence about the nature and extent of the affordable housing problem may help build consensus about how to tackle it effectively. And that is an outcome we badly need.

Authors: Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW; Oliver Frankel, Adjunct Professor, UTS Business School, University of Technology Sydney

Government Consults on National Housing Finance and Investment Corporation

The Government, late on Friday night (!) before the school holidays, has issued a consultation on the formation of a new entity to help address housing affordability. The National Housing Finance and Investment Corporation is central to the Government’s plan for housing affordability.

Actually, this simply extends the “Financialisation of Property” by extending the current market led mechanisms, on the assumption that more is better. Financialisation is, as the recent UN report said:

… structural changes in housing and financial markets and global investment whereby housing is treated as a commodity, a means of accumulating wealth and often as security for financial instruments that are traded and sold on global markets.

So, we are not so sure.  Also, we are not convinced housing supply problems have really created the sky-high prices and affordability issues at all.  And, by the way, the UK, on which much of this thinking is based, still has precisely the same issues as we do, too much debt, too high prices, flat incomes, etc.

Anyhow, the Treasury consultation is open for a month.  We will take a look at the three elements to the proposal:

  • The National Housing Finance and Investment Corporation (NHFIC) – a new corporate Commonwealth entity dedicated to improving housing affordability;
  • A $1 billion National Housing Infrastructure Facility (NHIF) which will use tailored financing to partner with local governments in funding infrastructure to unlock new housing supply; and
  • An affordable housing bond aggregator to drive efficiencies and cost savings in the provision of affordable housing by community housing providers.

They argue that Australians’ ability to access secure and affordable housing is under pressure and that housing supply has not kept up with demand, particularly in our major metropolitan areas, contributing to sustained strong growth in housing prices. This is impacting the ability of Australians to purchase their first home or find affordable rental accommodation.

The average time taken to save a 20 per cent deposit on a house in Sydney has grown from five to eight years in the past decade, while the time taken to save a similar deposit in Melbourne has grown from four to six years over the same period. Half of all low-income rental households in Australia’s capital cities spend more than 30 per cent of their household income on housing costs. Meanwhile, across Australia, community housing providers (CHPs) currently provide 80,000 dwellings to low-income households at sub-market rates, and around 40,000 Australians are currently on waiting lists for community housing and an additional 148,000 are on public housing waiting lists.

The National Housing Finance and Investment Corporation is central to the Government’s plan for housing affordability

In the 2017–18 Budget, the Government announced a comprehensive housing affordability plan to improve outcomes across the housing continuum, focused on three key pillars: boosting the supply of housing and encouraging a more responsive housing market, including by unlocking Commonwealth land; creating the right financial incentives to improve housing outcomes for first-home buyers and low-to-middle-income Australians, including through the Government’s First Home Super Saver scheme; and improving outcomes in social housing and addressing homelessness, including through tax incentives to boost investment in affordable housing.

The Government’s plan includes establishing:

  1. the National Housing Finance and Investment Corporation (NHFIC) — a new corporate Commonwealth entity dedicated to improving housing affordability;
  2. a $1 billion National Housing Infrastructure Facility (NHIF) which will use tailored financing to partner with local governments (LGs) in funding infrastructure to unlock new housing supply; and
  3. an affordable housing bond aggregator to drive efficiencies and cost savings in CHP’s provision of affordable housing.

These measures are important but can only go so far in improving housing affordability. As noted by the Affordable Housing Working Group (AHWG), further reforms to increase the supply of housing more broadly have the capacity to improve housing affordability and alleviate some of the pressure on the community housing sector. To this end, they would be complemented by the development of a new National Housing and Homelessness Agreement with an increased focus on addressing housing affordability.

The Government’s objectives for the NHFIC reflect its priorities to improve affordable housing outcomes for Australians. The NHFIC intends to grow the community housing sector, and increase and accelerate the supply of housing where it is needed most.

Governance of the National Housing Finance and Investment Corporation

Entity structure – The NHFIC is expected to be established through legislation as a corporate Commonwealth entity. It will be a body corporate that has a separate legal personality from the Commonwealth, but will be subject to an investment mandate prescribed by the Treasurer that reflects the Government’s objective of improving housing outcomes. It is currently envisaged that both the NHIF and the affordable housing bond aggregator functions would be established as separate business lines within the single corporate entity. The final structure of the NHFIC will be determined in accordance with the Commonwealth Governance Structures Policy administered by the Department of Finance. The Governance Structures Policy provides an overarching framework to ascertain fit-for-purpose governance structures for all entities established by the Government. The NHFIC Board may also engage third-party providers with the requisite expertise to provide treasury, loan administration and other back-office support for its bond aggregator and/or NHIF business lines.

NHFIC Board

The Government intends to appoint an independent, skills-based Board to govern the NHFIC. Board members are expected to be selected by the Government on the basis of expertise in finance, law, government, housing, infrastructure and/or public policy. The Board will be responsible for the entity’s corporate governance, overseeing its affairs and operations. This includes establishing a corporate governance strategy, defining the entity’s risk appetite, monitoring performance and making decisions on capital usage. The Board will be responsible for ensuring that investment decisions made for the NHIF and the bond aggregator comply with the NHFIC investment mandate. The Board will also ensure that the NHFIC is governed according to best-practice corporate governance principles for financial institutions, including compliance with the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

The affordable housing bond aggregator

The NHFIC will also operate an affordable housing bond aggregator designed to provide cheaper and longer-term finance to CHPs. CHPs are an important part of the Australian housing system. They provide accommodation services for social housing, managing public housing on behalf of state and territory governments. They also own their own stock of housing, which they offer to eligible tenants at below market rents. CHP tenants range from people on very low incomes with rents set at a proportion of their income (generally 25 to 30 per cent) to tenants on low to moderate incomes with rents set below the relevant market rates (usually set at 75 to 80 per cent of market rents).

Many CHPs (over 300) are registered either under the National Regulatory System for Community Housing (NRSCH) or other state and territory regulatory regimes (which is the case in Victoria and Western Australia).

Although the community housing sector has grown over recent years, it remains relatively small at around 80,000 properties (less than 1 per cent of all residential dwellings) in 2016. This is compared to more than 2.8 million properties (around 10 per cent of all residential dwellings) in the United Kingdom in 2015. There are substantial barriers to the community housing sector achieving the scale and capability necessary to meet current and future demand for affordable rental accommodation. These include the fragmentation of the sector, its limited financial capability (including the degree of financial sophistication), and the funding gap — the inability of sub-market rental revenues to cover the costs of providing affordable housing — which constrains the extent of services that CHPs can offer.

Bond aggregator model

The bond aggregator aims to assist in addressing the financing challenge faced by the CHP sector. It improves efficiency and scale by aggregating the lending requirements of multiple CHPs and financing those requirements by issuing bonds to institutional investors. The bond aggregator will act as an intermediary between CHPs and wholesale bond markets, raising funds on behalf of CHPs at potentially lower cost and over a longer term than traditional bank finance (which generally offer three to five-year loan terms). This structure will provide CHPs with a more efficient source of funds, reduce the refinancing risk faced by CHPs and will reduce their borrowing costs. This should enable CHPs to invest more in providing social and affordable rental housing.

However, the bond aggregator alone will not close the funding gap experienced by CHPs. This will require ongoing support from all levels of government. In their respective reports, the AHWG15 and Ernst and Young (EY) both highlight the important role of the bond aggregator, while noting that it is only a partial solution to closing the funding gap for CHPs.

Key findings of the EY report

Analysis undertaken by EY for the Affordable Housing Implementation Taskforce in 2017 found that an affordable housing bond aggregator is a viable prospect in the Australian context and recommended a number of design features. EY found that a bond aggregator could potentially provide longer tenor and lower cost finance to CHPs. The interest savings could be in the order of 0.9 to 1.4 percentage points for 10-year debt (depending on the level of Government support).

Furthermore, EY estimated that the CHP sector will need to access around $1.4 billion of debt over the next five years, which should provide the necessary demand and scale needed to support affordable housing bond issuances.

An affordable housing own goal for Scott Morrison

From The New Daily.

There was considerable shock on Friday when Treasurer Scott Morrison announced legislation that could block billions of dollars of new housing supply – bizarrely enough, in the name of ‘affordable housing’.

Property developers are aghast at Mr Morrison’s draft legislation, because although they see it as giving a small leg-up to the community housing sector, they think it will block literally billions of dollars in investment in mainstream rental dwellings.

Both measures relate to an established way of bringing together large pools of money from institutions or wealthy individuals as ‘managed investment trusts’ (MITs).

Mr Morrison’s draft law is offering MITs a 60 per cent capital gains tax discount for investing in developments run by recognised ‘community housing providers’, rather than the normal 50 per cent discount.

But at the same time the legislation bans MITs from investing in all other residential developments.

The reason that has shocked property developers is that they have been anticipating for some time that MITs would play a major role in the emerging ‘build-to-rent’ housing market.

Two types of build-to-rent

There is some confusion around the term ‘build-to-rent’ at present, because it is being used to describe two quite different kinds of housing, both of which are booming in the UK and US.

The first is a straightforward commercial proposition. A developer might build a 100-dwelling development – be it townhouses, low-rise apartments, or high-rise flats – but instead of selling off each home to speculators or owner-occupiers, it retains ownership and rents them out directly.

The second variation is similar, but involves government subsidies and the input of community housing providers, to keep rents low.

That model, being championed by the likes of shadow housing minister Doug Cameron, would connect large investors such as local super funds or overseas pension funds, with long-term investments that provide secure, good-quality rental properties to lower-income Australians.

So when you read the term ‘build-to-let’, have a look at who is using it – it could mean fancy apartments with swimming pools, gyms or other communal facilities, or just decent housing that cash-strapped people can afford.

A fatal contradiction

What’s so surprising about Mr Morrison’s two new measures, is that they appear to work against each other.

One is trying to push rents down for low-income groups squeezed out of the mainstream market, but the other looks to crimp supply in the mainstream market and thereby push rents up.

That would be a big mistake, because both kinds of new dwellings are needed as our increasingly dysfunctional capital cities look for ways to ‘retro-fit’ sprawling suburbs with higher-density housing.

For many years now I have complained that the housing market didn’t have to get to this point – negative gearing and the capital gains tax breaks that have helped push home ownership out of reach of many Australians should have been reined in years ago.

But they were not, and the market, and the economy more generally, has become dangerously unbalanced by the housing credit bubble that those tax breaks created.

If that imbalance is successfully unwound – by wages catching up to house prices – it will be a small miracle, but it will also take a long time.

In the meantime, increasing housing supply in the right areas of our capital cities is a good way to keep a lid on prices, albeit rents rather then purchase prices – though an abundance of good rental properties can lower those, too.

That is what Mr Morrison’s draft legislation is jeopardising.

Labor, as you might expect, has slammed the ban on MIT investments, which shadow treasurer Chris Bowen says “has completely ambushed the property and construction sector”.

Much rarer, is for the Treasurer to be at odds with the Property Council – the lobby group he worked for between 1989 and 1995.

But it has also been scathing of the change.

It said on Friday: “The answer to Australia’s housing problem is more supply. Build to rent has the potential to harness new investment that could deliver tens of thousands of new homes and provide a greater diversity of choice for renters.

“… the unintended consequence of the draft legislation is to completely close down the capacity for Managed Investment Trusts (MITs) to invest in build to rental accommodation. This risks stalling build-to-rent before it starts.”

Given that kind of opposition, it’s hard to see the MIT investment ban becoming law – or if it did, the government that put such a ban in place ever living it down.

Treasury Releases Affordable Housing Measures

As part of the 2017-18 Budget, the Government announced it would be providing tax incentives to increase private and institutional investment in affordable housing. They have now released an exposure draft for comment.

The legislation proposes an additional 10% Capital Gains Tax (CGT) benefit for investors who provide affordable housing via a recognised community housing entity.

It also allows investment for affordable housing to be made via Managed Investment Trusts (MIT).

The purpose of public consultation is to seek stakeholder views on the exposure draft legislation and explanatory material. Deadline for submissions is 28th September.

Changes To CGT.

The Bill encourages investment in affordable housing for members of the community earning low to moderate incomes. This is achieved by allowing investors to have an additional affordable housing capital gains discount of up to 10 percent at the time a CGT event occurs to an ownership interest in a dwelling that is residential premises that has been used to provide affordable housing. By reducing the CGT that is payable upon disposal of affordable housing, it ensures that a greater proportion of the gain realised at disposal is retained by the investor.

The additional capital gains discount applies to investments by individuals directly in affordable housing or investments in affordable housing by individuals through trusts (other than public unit trusts and superannuation funds), including MITs to the extent the distribution or attribution is to the individual and includes such a capital gain.

An individual is eligible for an additional affordable housing capital gains discount (direct investment) on a capital gain if they:

  • make a discount capital gain from a CGT event happening in relation to a CGT asset that is their ownership interest in a dwelling; and
  • used the dwelling to provide affordable housing for at least three years (1095 days) which may be aggregate usage over different periods.

Only dwellings that are residential premises that are not commercial residential premises can be used to provide affordable housing. Therefore this measure does not apply to caravans, mobile homes and houseboats as they are not residential premises.

The tenancy of the  dwelling or its availability for rent to be exclusively managed by an eligible community housing provider. Community housing providers provide rental housing to tenants who are members of the community earning low to moderate incomes. Community housing providers may own some of the dwellings, however they also manage dwellings on behalf of investors, institutions and state and territory governments. Many community housing providers specialise in providing accommodation to particular client groups which may include disability housing, aged tenants and youth housing. Community housing providers are regulated by the states and territories. For the purposes of this measure an eligible community housing provider is an entity that is registered as a community housing provider to provide community housing services under a law of the Commonwealth, state or territory or is registered by an Australian.

Affordable housing through managed investment trusts.

The proposals will amend taxation laws to encourage managed investment trusts (MITs) to invest in affordable housing. They:

  • allow MITs to invest in dwellings that are residential premises (but not commercial residential premises) that are used to provide affordable housing primarily for the purpose of deriving rent; and
  • apply the concessional 15 per cent withholding tax rate to fund payments: – to the extent they consist of affordable housing rental income and certain capital gains from dwelling used to provide affordable housing; and – that are paid or attributed to MIT members who are foreign residents of jurisdictions which Australia has listed as an exchange of information country.

A MIT is a type of unit trust which investors can use to collectively invest in assets that produce passive income, such as shares, property or fixed interest assets. There also currently is significant uncertainty about the eligibility rules for trusts being MITs if investments are made in dwellings that are residential premises. This is because there is a view that investment in residential property is not made for a primary purpose of earning rental income. It is instead for delivering capital gains from increased property values, and therefore not eligible for the MIT tax concessions.

This measure clarifies the eligibility rules for trusts to be MITs if they invest in dwellings that are residential premises. This will help to provide investors with investment certainty. This change will not, however, affect MITs investing in commercial  residential premises. This means that trusts can invest in commercial residential premises and qualify as MITs provided this investment is primarily for the purpose of deriving rent consistent with the eligible investment business rules.

 

A House Divided

From The Real Estate Conversation.

The Bank of mum and dad is growing the divide between those who can and those who can’t buy property. The latest Adelaide Bank/REIA Housing Affordability Report shows affordability is worsening, just as new research from Mozo shows increasing numbers of parents are stepping in to help their children get a foot on the property ladder. This chimes well with our own Bank of Mum and Dad research published recently.

The latest Adelaide Bank/REIA Housing Affordability Report shows affordability is worsening in Australia, just as new research from Mozo shows growing numbers of parents are stepping in to help their children get a foot on the property ladder. The trend is causing “a growing divide between the younger generation who have had assistance and those who have not,” Kirsty Lamont, Mozo Director, told SCHWARTZWILLIAMS.

The latest Adelaide Bank/REIA Housing Affordability Report shows that buying a house became even less affordable during the June quarter.

The deterioration in affordability comes as research from Mozo.com.au shows almost a third of all parents are helping their children to buy their first home.

The Adelaide Bank/REIA Housing Affordability Report shows the proportion of median family income required to meet average home loan repayments increased by 0.2 percentage points to 31.4 per cent.

The share of first-home buyers in the market is at its highest level since 2010

There is a bright spot in the data though. The number of loans to first-home buyers increased by 14.0 per cent, with increases in all states and territories except Tasmania.

“First home buyers now make up 14.3 per cent of total owner occupied housing,” said REIA President Malcolm Gunning.

Darren Kasehagen, Head of Business Development at Adelaide Bank, said, “A slight increase in housing affordability shouldn’t overshadow the welcome news that the number of first home buyers  increased by 14.0 per cent during the quarter.”

The rate of first-home buyers has been dropping steadily over the last five years, but appears to have stabilised over the past 18 months, said Gunning.

Rental affordability improved

In the June quarter, the proportion of median family income required to meet rent payments declined by 0.6 percentage points to 24.3 per cent. The improvement was recorded across all states and territories except in Tasmania and the Australian Capital Territory, said Gunning.

Rental affordability is the best it has been since the March quarter 2010, according to Gunning.

The bank of mum and dad is stepping in, expanding the divide between those who can afford to get into the market and those who can not

With it getting harder for first-home buyers to get into the property market independently, the ‘bank of mum and dad’, as lending from parents has become known, has ballooned to being the fifth largest home lender in Australia, sitting behind, ANZ, the Commonwealth Bank, NAB and Westpac.

New research from financial comparison site, Mozo.com.au, shows 29 per cent of parents, or more than 1 million families, help their children purchase a home. Around $65.3 billion has been lent to children, with 67 per cent of parents not expecting any repayment.

The average amount lent to children is $64,206.

“For many first homebuyers, it takes years to scrimp and save for a home deposit and all the while house prices are continuing to skyrocket, making the great Australian dream exactly that – a dream,” said Lamont.

Australian property prices have risen 618 per cent in the last 30 years; wages growth hasn’t kept pace

“With Australian property prices rising by a staggering 618 per cent over the past 30 years and wages failing to keep up, many mums and dads across the country feel they have no choice but to dip into their own savings to help their children get a foot on the property ladder.”

Lamont said by dipping into their own savings and helping out their children, parents are actually shaping the property market.

“We knew that mums and dads were helping their children out, but the reality is they are actually changing the face of the Australian property market,” she said.

“We expect the Bank of Mum and Dad to remain a major player in the property market for years to come, and it’s likely to cause a growing divide between the younger generation who have had assistance and those who have not.”

“Those young Australians who don’t have access to parental assistance may have to shelve the property dream and consider other ways to invest their money and build wealth,” said Lamont.

“The bank of mum and dad is proof of family generosity, but also points to a broken property market for younger generations.”

  • NSW is the most generous state for parental lending with an average lend of $88,250 per family, totalling $32.7 billion.
  • VIC and SA rank second equal, lending around $63,000 per family.
  • ACT and NT are the least generous, lending $20,083 and $15,000 per family respectively.

The most popular ways for parents to help their kids get a foot on the property ladder is by allowing their children to live at home rent free. Other ways parents help is by acting as a guarantor, helping with repayments, or buying property on behalf of or as a partner with the child.

How Australian parents are helping their kids onto the property ladder

How Australian parents are financing their contribution to their children

Data from the Adelaide Bank/REIA Housing Affordability Report from across the nation

Victoria

The number of loans to first home buyers in Victoria increased by 10.0 per cent in the June quarter. In Victoria, first home buyers now make up 21.1 per cent of the state’s owner-occupier market. Rental affordability improved for the quarter with a decrease of 0.7 per cent of income required to meet median rents.

New South Wales

The proportion of family income required to meet loan repayments is 6.6 per cent higher than the nation’s average. New South Wales remains the least affordable state or territory in which to buy a home. Of the total number of Australian first home buyers that purchased during the June quarter, 18.2 per cent were from New South Wales. First home buyers now make up only 13.0 per cent of the state’s owner-occupier market – the lowest level across the nation. Rental affordability improved for the quarter with a decrease of 0.4 per cent of income required to meet median rents.

Queensland

The proportion of income required to meet home loan repayments increased to 27.2 per cent, a 0.5 percentage point increase over the quarter. Of all Australian first home buyers over the quarter, 25.4 per cent or 6003 were from Queensland while the proportion of first home buyers in the State’s owner-occupier market was 25.3 per cent. Rental affordability improved slightly for the quarter with a decrease of 0.7 per cent to 23.0 per cent of income required to meet median rents.

South Australia

South Australia recorded a decline in housing affordability with the proportion of income required to meet monthly loan repayments increasing to 26.8 per cent, an increase of 0.6 percentage points over the quarter but a decrease of 0.1 percentage points compared to the June quarter 2016. In the national breakdown, 5.8 per cent of first home buyers were from South Australia while the proportion of first home buyers in the State’s owner-occupier market recorded an increase of 12.6 per cent. Rental affordability improved by 0.7 percentage points.

 

Western Australia

The number of first home buyers in Western Australia increased by 16.0 per cent over the quarter and by 3.8 per cent compared to the same time last year. 17.5 per cent of all Australian first home buyers were from Western Australia. Housing affordability declined with the proportion of income required to meet loan repayments increasing to 23.6 per cent or 0.2 percentage points over the quarter but a decrease of 0.3 percentage points year on year.

Tasmania

Housing affordability in Tasmania declined with the proportion of income required to meet home loan repayments increasing to 23.9 per cent, an increase of 0.3 percentage points over the quarter and an increase of 0.2 percentage points year on year.  Rental affordability in Tasmania improved with the proportion of income required to meet median rents decreasing to 25.8 per cent, a 0.8 percentage point drop over the quarter but an increase of 0.8 percentage points year on year.  First home buyers in Tasmania decreased by 3.3 per cent over the quarter and by 17.6 per cent compared to the same quarter last year.

Australian Capital Territory

The number of loans to first home buyers in the Australian Capital Territory increased to 570, an increase of 49.6 per cent over the quarter and an increase of 21.8 per cent compared to the June quarter 2016. Housing affordability in the Australian Capital Territory improved with the proportion of income required to meet home loan repayments decreasing to 19.8 per cent, a 0.3 percentage point drop over the quarter and a decrease of 0.7 percentage points compared to the same quarter last year.  Rental affordability remained stable. The proportion of income required to meet the median rent remained at 17.9 per cent.

Northern Territory

Housing affordability in the Northern Territory improved with the proportion of income required to meet loan repayments decreasing to 20.3 per cent in the June quarter or 0.8 percentage points. This was a decrease of 1.8 percentage points year on year.  Rental affordability in the Northern Territory also improved with the proportion of income required to meet the median rent decreasing to 23.1 per cent or 0.6 percentage points over the quarter or a decrease of 2.0 percentage points compared to the June quarter 2016.

Housing Affordability Declines Further

HIA’s Affordability Index shows Housing affordability in Australia continued to decline in the June quarter this year. This is largely due to a rise in the median dwelling price of 9.1% per cent to a record high of $540,200.

The HIA Affordability Index is produced quarterly and uses a range of data to including wages, house prices and borrowing costs to provide an indication of the affordability of housing. A higher index result signifies a more favourable affordability outcome.

The growth in house prices in the quarter outstripped the growth in wages resulting in the deterioration in affordability. As a consequence of these factors the Affordability index for Australia dropped by 0.3 per cent in the June 2017 quarter.

NSW was the most significant negative influence on this result with affordability in Sydney now declining past a critical level (Sydney, – 0.7% and the rest of NSW, – 2.2 per cent). Acquiring and servicing a mortgage on a house in Sydney now requires more than two standard Sydney incomes. Sydney is the only market to have achieved this outcome in the 15 year history of this report.

Affordability in Melbourne improved marginally in the quarter but remains 6.0 per cent less affordable than this time last year.

On the positive side, during the June 2017 quarter, affordability improved in six of the eight capital cities. The largest improvement occurred in Darwin (+4.3 per cent), followed by Adelaide (+2.9 per cent), Hobart (+1.6 per cent), Brisbane (+1.0 per cent), Canberra (+0.8 per cent) and Melbourne (+0.8 per cent).

Of the capitals where affordability worsened, the biggest deterioration was in Perth (-1.3 per cent) and Sydney (-0.7 per cent). The Perth deterioration in affordability appears to contradict the soft conditions in that market but the fall in average wages in Perth in the quarter outweighed the positive impact on affordability from the falls in home prices.

Four outdated assumptions prevent progress on affordable housing

From The Conversation.

Housing influences everything from productivity and employment through to intergenerational poverty and childhood education. Yet outdated concepts and thinking are shaping Australia’s troubled housing system.

My recent research – involving in-depth interviews with leaders across government, NGOs, the private sector and academia – identified four misguided assumptions about affordable housing.

These key assumptions are about:

  • the difference between housing affordability and affordable housing;
  • home ownership versus renting;
  • stereotypes about those in need of affordable housing; and
  • voters not valuing affordable housing.

Tackling these assumptions could help change how Australians think about their housing system.

Housing affordability versus affordable housing

The cost of home ownership has long been of concern for governments and people. These discussions largely relate to “housing affordability”, as it applies to those who live in – or aspire to live in – their own home.

There are two other categories in the housing market, which are less glamorous and well publicised. These are those in the private rental market (with or without government assistance), and those who cannot access the private rental market (and thus require access to social housing).

“Affordable housing” largely relates to these latter two categories. Specifically, it refers to public and community housing, as well as the affordable end of the private rental market.

It is not well appreciated that the requirements of affordable housing are related to – but not the same as – those for housing affordability. The challenges of home ownership for middle-to-high-income earners are very different to the struggles of low-income earners in finding a place to rent – let alone own. Yet there is an assumption that increasing supply is a silver bullet for both groups.

However, increasing supply for middle-to-high-income earners doesn’t necessarily create more affordable housing for low-income earners. The benefits don’t simply trickle down.

Likewise, actions to improve affordable housing do not necessarily relate to, or affect, the housing investments of middle-to-high-income earners.

Prioritising home ownership over renting

Home ownership is not possible for many, due to various life circumstances. Some people may have been able to access social housing or, due to decade-long waiting lists, have been exposed to the vagaries of the private rental market.

For others, renting is a choice. Private rental has become a long-term option for many Australians: about one-third of Australian households rent.

Despite its importance, the rental market remains the least secure and most neglected pillar of our housing system. Neglect has led to a chronic shortage of affordable rental properties for low-to-moderate-income earners, particularly anywhere near employment.

Australia also lags behind many other countries when it comes to tenancy regulations. Leases of 12 months or less are the norm.

Culturally, home ownership is still seen as superior to renting. Such deeply entrenched views accompany an assumption that renting is a short-term transitional phase, not a desirable end state.

Stigmas and stereotyping of those in need

Stereotypes abound about those who require affordable housing. This, in part, is fuelled by media portrayals and lack of lived experience.

People who experience housing stress or need assistance are in fact diverse. They include the homeless through to essential workers on moderate incomes.

A significant proportion of people in social housing are aged under 14 or older than 55. Home owners can even encounter unforeseen surprises: one in five experience instability in their housing tenure.

Stigmas associated with affordable housing can lead to a wider lack of empathy for those in need, and a reluctance to ask for help by those who need it.

The alienation of those with a mental illness or disability can be even worse. This has many implications, not least for planning decisions. A “not in my backyard” mentality of local residents has blocked more than one plan for affordable housing.

Voters not valuing affordable housing

Government at all levels play an active role in Australia’s housing system. Taxation settings, financial regulation, infrastructure development, land use planning, immigration and income support all affect housing outcomes. Likewise, commercial operators, NGO, government and community housing providers are all shaped by the regulatory and policy structures of government (and its many silos).

The fragmentation in policies, providers and services perpetuates the serious gaps in housing provision.

Mental health patients in hospitals and domestic violence victims are unable to leave because their only pathway is homelessness. Desperate families compromise on food, education and health while waiting on social housing availability.

Significant frustrations expressed with government decision-making are at least partly voters’ responsibility. The electorate seems to tolerate perpetual changes of government policies and the inconsistencies in state and Commonwealth government objectives.

Shelter is a key part of our existence. Yet a lack of wider public awareness about the role affordable housing plays in both society and the economy means voters don’t rate it as a priority. Until they do, governments are unlikely to make it a priority, either.

Author: Fiona McKenzie, Co-Founder and Director of Strategy, Australian Futures Project, La Trobe University

Housing affordability deteriorated further over the March 2017 quarter

From Core Logic.

With dwelling values rising at a faster pace than household incomes, housing affordability has worsened over the first quarter of 2017.  CoreLogic measures housing affordability across four measures and three of these four measures have seen affordability deteriorate over the quarter.

The four affordability measures that CoreLogic calculate are:

  1. Dwelling price to household income ratio – essentially how many years of gross annual household income are required to purchase a property outright
  2. Years to save a deposit – how many years of gross annual household income are required for a 20% deposit
  3. Serviceability – calculating mortgage repayments on an 80% loan to value ratio (LVR) mortgage utilising the standard variable mortgage rate and a 25 year mortgage, what proportion of gross annual household income is required to service a mortgage
  4. Dwelling rent to household income – the proportion of gross annual household income required to pay the rent

The measures we look at utilise median household incomes which have been modeled by the Australian National University (ANU).

As at March 2017, the national price to income ratio was recorded at 7.3 compared to 7.2 a year earlier, 6.4 five years earlier and 6.1 a decade ago.  Looking at houses and units, the ratios were recorded at 7.4 and 6.7 respectively at March 2017.

It would have taken 1.5 years of gross annual household income for a deposit nationally at the end of the March 2017 quarter.  This is compared to 1.4 years a year earlier, 1.3 years five years ago and 1.2 years a decade ago.  If saving for a house it would take 1.5 years of the median household income for a deposit compared to 1.3 years of income for a unit.

The calculation of the proportion of household income required to service a mortgage is very sensitive to mortgage rates.  At the end of March 2017, the discounted variable mortgage rate for owner occupiers was 4.55% and a mortgage required 38.9% of a household’s income.  A year earlier mortgage rates were 4.85% and the mortgage used 39.6% of the household income.  Five years ago, mortgage rates were 6.7% and a decade ago they were 7.45% and households required 42.2% and 42.8% of their household income respectively to service a mortgage.  Further to this you can see that the proportion of household income required to service a mortgage peaked at 51.0% in June 2008 when mortgage rates were 8.85%.  Houses currently require 39.39% of a household’s income to service a mortgage compared to units requiring 36.0%.

The final affordability measure looks at the alternative to taking out a mortgage, renting, looking at the rent to income ratio.  The rent to income ratio has been more stable compared with measures related to purchasing a home or servicing a mortgage, as it is more limited by growth in household incomes.  In March 2017, the ratio was recorded at 29.6% compared to 30.4% a year earlier, 29.1% five years earlier and 25.8% a decade ago.  At the end of March 2017 the ratio was recorded at 29.6% for houses and units.

The above table highlights each of the four housing affordability measures across the Greater Capital City Statistical Areas (GCCSA) regions as at March 2017.  Capital cities are generally more expensive across all measures than regional markets despite household incomes generally being higher in capital cities.  Sydney is the least affordable housing market across most measures.  Sydney’s price to income ratio is significantly higher than all other regions analysed.  Furthermore, the serviceability calculation shows that despite mortgage rates being at close to historic low levels, a Sydney property owner is utilising 45% of their household income to service their mortgage.

This data provides a snapshot of how housing affordability is tracking across the country, and it highlights how in Sydney and Melbourne in particular it is deteriorating as dwelling values have risen over recent years. Another important point to note is that lower mortgage rates make servicing debt easier however, it doesn’t make it easier to overcome the deposit hurdle, particularly given fairly sluggish household income growth over recent years.  The data also suggests that servicing a mortgage remains more expensive than paying for rental accommodation although the gap has narrowed as interest rates have fallen.

It is important to look at a range of housing affordability measures and analyse them over time to get a true understanding of the housing affordability challenges.  Over recent years affordability on a price to income and saving for a deposit basis has deteriorated in Sydney and Melbourne however it is relatively unchanged or slightly improved in most other capital cities.  On the other hand, as mortgage rates have fallen servicing a mortgage has required a lower proportion of household income which in turn has allowed some owners to reinvest or increase their spending elsewhere.

NSW gov’t unveils housing affordability measures

From Australian Broker.

The NSW Government has announced it will spend more than $720m over the next four years to address the key issue of housing affordability.

“Our number one priority as a government is to get more houses built and to market to help make new homes more affordable,” Minister for Planning and Housing, Anthony Roberts said.

“We are working on many fronts to make owning a home a reality for more people, by streamlining and simplifying the planning system so housing approvals can be fast-tracked and are continuing to release and rezone more land.”

The 2017-18 NSW Budget includes $117.8m over four years of new investment to deliver infrastructure, housing and employment initiatives, review land use and infrastructure strategies for priority growth areas and implement regional plans.

In addition there are address housing affordability by expanding Priority Precincts and Priority Growth Areas to deliver around 30,000 additional dwellings, and to support the reform of Infrastructure Contributions, to:

  • Develop framework plans for priority precincts and growth areas
  • Review and develop proposals to update planning legislation
  • Implement the State Environmental Planning Policy review
  • Develop a framework for applying statutory strategic planning to non-metropolitan areas
  • Develop more effective conditions of consent that are better integrated with environmental protection and other licences
  • Develop a strategic policy framework for social and affordable housing in key locations
  • Develop and implement Windfarm Assessment Guidelines and Social Impact Guidelines
  • Develop a framework for managing land use conflicts in regional areas

Roberts said that reforms to financial contributions by developers towards new developments would further support the provision of local infrastructure and speed up the delivery of housing.

Other Budget initiatives include:

  • $14.4m ($40m over four years) of new investment to address housing affordability
  • $12.5m ($70.6m over four years) of new spending to accelerate major project assessments; support Joint Regional and Sydney Planning Panels operations across NSW; deliver high quality, timely assessments and post-approval activities for major projects; improve environmental impact assessment; support planning system mergers across local government and drive regional growth and improve environmental outcomes

“This Government is committed to making housing in NSW more affordable for everyone and this is a responsible and well-targeted budget that will do just that,” Roberts said.