Australian Property Still Within Reach for Many

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Australian Property Still Within Reach for Many

The recent RBA Submission to the Parliamentary inquiry into Home Ownership has uncovered a number of facts and figures all of which have been spouted out by a number of different groups on either side of the housing debate. Ranging from developers and investors to the traditional homeowners the debate runs rife but the inquiry tries to tackle some big issues and to a homeowner there is nothing more important than protecting and maintaining the character of their neighbourhood.

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It is also interesting to note that Australia’s taxation system do little to support housing aside from supporting individual landlords through capital gains and negative gearing tax provisions. While other developed nations may offer more generous systems such as the United States allowing for home owner mortgage payments as tax deductions and New Zealand’s capital gains tax exemptions for properties held over a long period.

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Despite much of the uproar of overinvesting and the loss of the great Australian dream of owning a detached house due to unaffordability, the overall level of home ownership has been relatively steady across the board in recent years. It has been noted that younger home owners are certainly in decline however the aging population of Australia has to be taken into account and with this higher rates of home ownership in the higher brackets.

It has been debated that this decline in ownership rates of younger Australians is due to the rising unaffordability of property particularly close to the cities. However a number of factors would refute this. One particular notion is, despite the greater cost of a deposit, the required level of deposit has declined in recent years from around 20% of purchase price to as little as 5% easing younger Australians into the property market by requiring less savings and upfront costs. Another noteworthy aspect is the trend of diminishing young homeowners began in the early 1980s which was sometime before the sharp price rises of the mid 1990s following the decline of interest rates and inflation as well as the deregulation of lending.

It has been suggested by the RBA that this phenomenon is more likely to be a social change driving this decline in young homeowners rather than one driven by affordability. Social influences such as a higher average marriage age and increase in single person households which can be closely linked to increase in divorce rates as well as a number of younger Australians choosing to live at home until later in life.

So what is it that causes Australia’s unique position as having some of the highest real estate prices in the world? The RBA noted that this is likely due to Australians preferences of living. Stating “Australia is highly urbanised and its urban population is unusually concentrated in a few large cities. The population densities of these cities are also quite low relative to those of cities with similar population sizes in comparable countries.”

What we can see from this is that although Australians are increasingly preferring to live in urban areas around the coast, they refuse to sacrifice their large blocks of land, something that many international bodies analysing property prices across the world do not take into account. Combining this with the urban sprawl, low infrastructure investment in the outer suburbs and the desire to live close to the city centre for work we end up paying a higher premium for land closer to urban centres.

In addition to this those residents living in regional centres outside of major cities suffer higher infrastructure costs per person leading to less investment in new housing supply reducing overall affordability removing any incentive to live outside of major centres. This then combines with the expensive and inconvenient commute giving incentive to the decision to purchase an urban property despite the expense which once again leads to reduced supply for regional centres and the higher infrastructure costs per person.

One solution to the growing rift of housing prices relative to income would be a government effort of further decentralisation of economic areas. Moving certain industries to regional locations promoting growth in supply and infrastructure in those areas thereby reducing the overall demand on urban property. This will not only give incentive to move to these regional centres due to reduced commute and reduced property prices but will ease infrastructure and supply issues which are currently present in the capital cities allowing for a more diversified and decentralised nation in contrast to the current situation of sprawling capital cities and limited supply in inner city areas.

By | 2017-04-07T14:38:31+00:00 August 11th, 2015|From the CEO, Market Updates|Comments Off on Australian Property Still Within Reach for Many

About the Author:

Josh Atherton is the founding director of PPI Advice and one of the countries leading property investment experts. He holds a full real estate licence in VIC, NSW, QLD, WA and NT and is constantly sought after to provide expert commentary when it comes to anything relating to residential property investment. An avid, experienced and sophisticated property developer himself, he specialises in helping investors realise their financial independence using property as the main asset class.