Have we become overly obsessed with housing affordability?
There’s been a government summit into what is shaping up as a huge election issue. Even Aussie Home Loans’ John Symond — who lives in a house estimate to cost more than $70million — is worried about affordability and wants tax breaks for first home buyers. Annoying people like myself keep writing about it.
Is anyone over it yet?
Demographer Bernard Salt says "no-one gave a toss about housing affordability until four years ago", which coincided with a housing boom and a time when Generation Y finally left home aged in their mid-20s. "Generation Y woke up and realised it was cold out there and how expensive houses were. They are the Gimme generation saying ‘I have got my Gameboy and iPod — where’s my house? I am entitled to it without putting in those boring years of saving’."
Salt says affordability is a genuine economic problem – especially in Sydney – but it has become a cultural fault line that sharpens generational and social divisions. "Sydney people especially like to exclude people who can’t afford to live in their city," he says. And we all love booming house prices if we are lucky enough to already own a house. It’s not so hot for a first home buyer trying to get into the market or renting from a landlord intent on hiking up prices.
Perhaps the frenzy of debate about affordability is concern that the wealthy, or those that saved money or had a leg-up from parents, unfairly "get ahead" of the market? In the meantime, mere mortals on the average wage are relegated to poor locations, long commute times and a life less ordinary.
"Generation Y expect an affordable house, ideally with a plasma television," Salt says."They have high expectations about jobs and lifestyle."
Basic economic theory says rents and house prices are dictated by supply and demand. Theoretically, houses can’t price themselves out of the market or become "unaffordable", as there would be no-one to buy them. Unfortunately government land release policies, immigration and finance availability affect affordability, creating housing winners and losers.
With immigration at record highs — net overseas migration was 147,700 in 2006, according to the ABS — and developers building less new dwellings than population growth dictates, some regions in Australia are on a hiding to more severe housing affordability problems. BIS Shrapnel estimates demand for new dwellings will be 169,300 per annum over the next five years, but only 150,000 will be built this year.
Macquarie Bank’s Rod Cornish argues that affordability will balance out over time, but it is a serious issue for people living in the middle and outer ring suburbs of major capital cities. "This is where affordability has deteriorated the most and where the impact of interest rates is the largest," he says.
"It will take a long period of wages rising faster than mortgage payments for affordability issues to go away." In the meantime, he says housing affordability hurts the economy by dampening retail spending and potentially harm future economic growth.
So what do you think? Is affordability an issue to worry about — or is it a load of hot air and Gen Y whinging?
Original story by Alex May