Solutions to Australia’s housing affordability woes

| February 16, 2018

Housing affordability continues to be a key issue in Australian cities. Founding Director of BeFinancial and CPA ‘changemaker’ Derek Grima looks at action that government and individuals can take to face ongoing housing affordability challenges.

Over the past 15 years, the cost of buying a dwelling currently takes 7.2 times more of the annual income of a typical Australian household than previously, heavily impacting the major cities such as Sydney and Melbourne, regional NSW and rapidly becoming an issue nationwide.

A number of variables in the past have played a part in fuelling this affordability crisis as the demand for property has outgrown the available supply. Some of these factors include:

  • rapid population growth;
  • record low interest rates; and
  • easy access to mortgage credit.

Added costs associated with buying a property can also make the ‘Australian Dream’ of owning your home further out of reach. For instance:

  • insufficient savings may force lenders mortgage insurance (LMI) onto a buyer;
  • the incurrence of land transfer duty (formerly stamp duty) on the purchase price; and
  • other entry costs such as legal and conveyancing fees, financial adviser fees and commissions, loan establishment fees, building and pest inspections and moving cost.

Action is already being taken by regulators to help remedy this issue. The Australian Prudential Regulation Authority (APRA) has made an attempt to reduce investment borrowing by imposing restrictions on financial institutions lending percentages. State Government in NSW and VIC have abolished stamp duty, within certain investment thresholds, and Federal Government has also announced various policies in the 2017 federal budget.

Regulators can assist further though greater investment in infrastructure and employment in regional areas as well as other favourable grants for individuals and first home buyers. The main issue however, is the time lag associated with any government action, resulting in a delayed effect for the country.

Taking action, as an individual, by becoming more educated is the most beneficial move you can make. By understanding your financial position, budgeting for the future and getting a better understanding of the financial and property markets as a whole, will help you to make more informed decisions in this area.

As capital cities and urban areas have been impacted the most, there may still be some great property opportunities in regional and upcoming areas. Rentvesting is a strategy that can be used in this instance, allowing buyers to purchase an investment property at an affordable price, while renting themselves in a suburb or city that is more appropriate for their lifestyle choices.

There are also more affordable opportunities to share the investment load with family members, friends or even unrelated parties. Companies such as CoVESTA, DomaCom and BrickX specialise in fractional investing, helping to facilitate part-ownership transactions in the property market, if you do not have the expertise to do so yourself.

There are also recent signs of a growing private sale market in Australia. Companies such as are investing heavily in developing a private seller’s portal to help facilitate these transactions free of charge. With a reduction in disposal cost through the omission of agent fees, we may see a slight adjustment in property prices as a result of this in the future.

The potential for interest rate rises, strong job growth, government intervention and the supply of housing slowly catching demand, it is doubtful that the markets will continue to grow as rapidly as in the past. With this in mind, property ownership may not be as favourable as it once was. With positive changes in tenancy legislation, the growth of Airbnb and a decline in the home ownership rates, we may in fact see more people renting for longer periods while using their capital to invest in other asset classes. As every individual has different circumstance personally, financially and in terms of their risk tolerance levels, the more educated we become as a nation in this area, the better we can make an informed decision that is best suited to our own personal situation when considering buying a property in the future.

Derek Grima participated in the CPA Congress 2017 and was a ‘changemaker’ who was part of a team that developed a strategy for young Australians to overcome housing affordability issues. The CPA report can be read here.