1. The Housing Shortage Myth
The problem lies in a shortage of desirable stock, not affordability.
Hysteria is a funny thing – People seem to get ‘so’ worked up about the latest meme that it
blinds them to obvious truths – one being that housing is still very affordable.
Australian Bureau of Statistics (ABS) – Medium Household Income is $75,000 to $80,000
House price–to–income ratios on the east coast of Australia are high;
• At around 9.7 times the medium household income in Sydney
• Melbourne house prices are around 7.3 times the medium household income
• Brisbane house prices are around 6.0 times the medium household income
Brisbane is still regarded as unaffordable, because it is higher relative to what you see
around the globe and well up on ratios seen in the 1980’s & 1990’s, which were around 3 to
4 times the medium household income.
These aggregated numbers will often hide the real picture:
• Take Sydney’s ratio (9.7 times) on the face of it - someone on an average salary is paying
nearly two- thirds of their income just in interest - this is clearly not affordable.
• However not every household earns between $75,000 to $85,000
Recent research from Barclays used a figure of $122,000 which lowers some of these ratios
considerably and makes housing much more affordable.
It’s probably fairer to use a higher income estimate as the ABS figures would include groups
like pensioners, the sick and people who aren’t generally in the property market at any price.
According to current ABS data, 16% of Australian households - more than one million
households - earn more than $150,000, whereas just over one third (approximately three
million households) earn more than $100,000 per year.
Most of these households would be in the capital cities.
Consider this - A household on $150,000 could afford a $1million –plus house. Someone on
$100,000 could afford anything in the vicinity of $650,000 to $800,000. (These estimates are
based on a 70% loan to value ratio (LVR).
Looking at the figures in this light, prices don’t seem so crazy.
The fact is you can still buy a house in the Sydney region for around $450,000 to $500,000.
In Sydney - houses can be purchased in the $300,000 range and that’s affordable for a
household on the median income, and that is not even including apartments.
This highlights that as a general principle, housing is still very much affordable.
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2. So when you hear pundits and politicians talking about a housing affordability crisis, what
they are really referring to is the fact that people can’t find a dwelling they can afford in the
area they want - usually the inner city.
That is a different issue. That is not a housing affordability crisis, it is basic economics and a
scarcity issue. It just reflects good old fashioned supply and demand.
The population is growing, but there is only a fixed amount housing stock available in
suburbs close to the city like Newtown, Paddington, Carlton or Mosman and this can’t meet
the demand.
Some 10 to 15 years ago the ABS reported that only about 250,000 households earned over
$3,000 per week ($156,000pa). Now more than a million households do.
The number of people earning $5,000 or more per week ($260,000) has more than tripled,
however it is unlikely that the housing stock in the fashionable areas has tripled.
So when people complain of unaffordable housing, it isn’t an affordability crisis,
because there is ample stock of affordable housing around the country.
It’s simply that with population growth, income growth and low interest rates, the
competition for desirable areas, which are in finite supply, is becoming fiercer.
The push towards “higher density” living is only going to exacerbate this problem and
its naïve to think that scrapping negative gearing or banning foreigners is going to
help. At best, it may slow the process, but it won’t end it because it does nothing to
stop the problem of scarcity!
Due to an increasing number of people living in a handful of cities, housing prices
can’t fall because of the simple economic law of supply and demand.
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