housing affordability

From Crikey.com

Why housing affordability is in decline


Political correspondent Christian Kerr writes:

So yesterday’s housing finance figures will put more pressure on interest rates? The great Australian dream has become the worry that keeps us awake. More and more of us are concerned whether we can buy into the housing market – or service our mortgages.

Interest rates won John Howard the last election. Yes, “who do you trust to keep interest rates lower” might have been shorthand for “Mark Latham’s mad”, but rates are still a touchstone issue – one that is shorthand for a whole range of economic management criteria.

The Government staked its economic credibility on the issue – which makes the information at the American website Demographia very interesting indeed. Guess which city comes in at Number 4 on its “Severely unaffordable markets” list for housing? Sydney. It says that in Sydney it takes 8.8 years of median household income to purchase a median priced home, compared with 2.7 years for the US boomtown of Houston. Melbourne’s Number 9. Amazing, Adelaide and Hobart come in next, at 12 and 13. Brisbane’s 15. Canberra’s 20 and Perth’s 21.

And the site has some interesting commentary: “All of the Australian markets except for Darwin are rated as ‘Severely Unaffordable’. Moreover, the rate of housing affordability loss in the major Australian markets has been stunning. In the first few years of this decade, the house price multiple has risen 40% or more in Adelaide, Brisbane, Perth and Sydney…

The following example illustrates the seriousness of the housing affordability crisis. Home ownership rates in Australia, Canada, New Zealand and the United States are all above 65%. At a 3.0 house price multiple, approximately 60% of US households could qualify for a mortgage on the median priced home. Above the 8.5 house price multiples now being witnessed in California and Sydney, fewer than 25% of households could qualify to purchase such a home. There’s a country-by-country analysis here . The ratio of median-house-price to median-household-income is:

Australia: 6.1
New Zealand: 5.1
United States: 3.9
Canada: 3.6


Australian housing may be more unaffordable than these figures suggest. Our interest rates are higher than the US and Canada, our personal income tax rates are higher than the US, Canada and NZ and mortgage interest on the principal residence is tax deductible in the US. See how housing meshes into a whole range of other policy debates – like tax? The government hasn’t just made a rod for its own back. It’s made a cat o’ nine tails.