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The Housing Affordability Challenge
Judy Yates
September 12th, 2007
Presentation based on results from AHURI NRV3 Final Report and associated Research Papers from research program on Housing Affordability for Lower Income Australians led by Judith Yates with Mike Berry, Terry Burke, Michelle Gabriel, Vivienne Milligan, Peter Phibbs, Simon Pinnegar and Bill Randolph.Reports available or forthcoming on AHURI website (www.ahuri.edu.au)
Outline
1. What’s the problem?
2. How did it come about?
3. What can we do about it?
What’s the problem?
At individual/household level increasing costs of access to home ownership large numbers in mortgage stress declining home ownership rates amongst young large numbers in housing stress in private rental significant homelessness
At economy wide level spatial segregation labour market inefficiencies intra and intergenerational inequities potential macroeconomic instability
Income and house price trends Australia 1960 - 2005
0
20
40
60
80
100
120
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Inde
x
Real house prices
Real house price trend
Real per household income trend
Source: NRV3, FR
HIA Affordability index:repayment to income ratio measure
Source: HIA-CBA Affordability Report, various years
$0
$100,000
$200,000
$300,000
$400,000
$500,000
1984 1988 1992 1996 2000 2004 2008
50
100
150
200
250
Median FHB house price (LHS)Housing affordability index (RHS)
$0
$100,000
$200,000
$300,000
$400,000
$500,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
-100
0
100
200
300
400
Rat
io (
%)
Median real house prices ($2006) Australia (LHS)
Deposit gap/income (AWE) (RHS)
Declining access to home purchase:deposit gap/income (AWE) ratio
Source: NRV3, FR; NRV3 RP11
Implications: age specific HO rates
Source: census data, special tables
40
50
60
70
80
1971 1976 1981 1986 1991 1996 2001 2006
(%)
25-29 years 30-34 years 35-39 years
Key message 1
Housing affordability problems are structural began 30-40 years ago (when inflation switched focus
on housing from providing shelter security to providing wealth security)
exacerbated by changes in CGT (in 1986 favouring owner-occupiers; in 1999 favouring investors)
What’s the problem?
Housing serves a dual role Consumption – provides shelter Investment – provides wealth
Affordability problems arise because Role as asset for wealthy crowds out Role of shelter for less well off
0
20
40
60
80
100
0 100 200 300 400 500 600
Numbers in stress ('000s)
Inci
de
nce
of s
tre
ss (
%)
Lower income private renters
Lower income purchasers
Moderate income purchasers
Moderate income private renters
Housing stress
Source: NRV3, FR
Key message 2
Housing affordability problems are greater for renters than for purchasers
What’s the problem?
At individual/household level increasing costs of access to home ownership increasing mortgage stress declining home ownership rates amongst young large numbers in housing stress in private rental significant homelessness
At economy wide level spatial segregation labour market inefficiencies intra and intergenerational inequities potential macroeconomic instability
Change in low income private renters: Sydney, 1991 to 2001
Source: Randolph and Holloway (2007)
Segregation
Source: Randolph and Holloway (2007)
Change in low income private renters: Melbourne, 1991 to 2001 Segregation
Inefficiency
Source: NRV3, RP5
Inequality
0
500
1,000
1,500
Q1 Q2 Q3 Q4 Q5 All
Net worth quintile
Mea
n ne
t w
orth
($'
000s
)
Other net worth
Other property
Owner-occupied housingSource: NRV3, RP10
Inequality
0
200
400
600
800
1000
15-24
25-34
35-44
45-54
55-64
65-74
75+ All
0
200
400
15-24
25-34
35-44
45-54
55-64
65-74
75+ All
Other net worth
Other property
Owner-occupied housing
Owner-occupiers
Others
Source: NRV3, RP10
Instability
Source: NRV3, RP4
How did it come about?
From demand pressures increasing number of households (population growth +
decreasing household size) increasing incomes increased availability of mortgage finance increasing wealth assisted by lack of capital gains
taxes on owner-occupied housing spatial concentration of demand (in urban and coastal
regions)
How did it come about?
On supply side increasing cost of land time taken for release of new land move to user pays for infrastructure financing increasing scarcity value well located land displacement of FHBs by rental investors (encouraged
by taxation incentives) reduced supply of affordable private rental housing declining supply of social housing
Dwelling price gradients, 1992 to 2002
Sydney
Melbourne
Source: PC (2004)
Source: 2001,06 census tables (20680-x49, i20)
Change in no. dwellings by size: 2001 to 2006
-5.0
0.0
5.0
10.0
15.0
20.0
0 1 2 3 4 5+ All
Number of bedrooms
Gro
wth
20
01
-20
06
(%
)
Source: 2006 census tables (20680-t18), CPI adjusted
Distribution of private rents, 1996, 2001, 2006
0
5
10
15
20
25
0 100 200 300 400 500 600 700
Rent ($2006 pw )
% o
f re
nta
l dw
elli
ng
s
1996 2001 2006
Key message 3
Many established home owning households have benefited significantly from increases in house prices through increases in value of owner-occupied housing
and through increases in value of rental housing
Demand for well-located housing from established and well-off owners has fuelled affordability problem for newly formed and renter households
1. Make investment by wealthy less desirable by reducing scarcity of desirable land
Increase supply desirable land (infrastructure, transport etc)
Reduce desirability of scarce land (decrease tax incentives for owning land; increase density)
What can we do about it?
2. Increase housing available for shelter (and investment) for low to moderate income households
Increase supply affordable rental housing
Help marginal purchasers stay in their homes
What can we do about it?
Specific policy ideas?
1. Develop a national affordable housing strategy
2. Better targeting of housing assistance to low and moderate income households
3. Strategic use of infrastructure investment
References
Berry, M. (2006) Housing affordability and the economy: A review of macroeconomic impacts and policy issues, NRV3 Research Paper 4, AHURI
Berry, M. (2006) Housing affordability and the economy: A review of the labour markets impacts and policy issues, NRV3 Research Paper 5, AHURI.
HIA-CBA (various years) Affordability Report (courtesy HIA)
Productivity Commission (PC)(2004) First Home Ownership, www.pc.gov.au
Randolph, B. and Holloway, D. (2007) Commonwealth Rent Assistance and the spatial concentration of low income households in metropolitan Australia, AHURI Final Report No. 101.
Yates, J. (2007) Affordability and access to home ownership: past and present, NRV3 Research Paper 10, AHURI forthcoming.
Yates, J. et al (2007) Sustaining Fair Shares: The Australian Housing System and Intergenerational Sustainability, NRV3 Research Paper 11, AHURI forthcoming.
Yates, J. and Milligan, V. (2007) Housing Affordability: A 21st Century Problem, Final Report, National Research Venture 3: Housing Affordability for Lower Income Australians, AHURI forthcoming.