Ausbuy

The Housing Affordability Crisis

December 20th, 2007

 This issue has been in the news recently with acres of newsprint and hours of air time devoted to it with people looking for easy solutions and someone to blame. The federal political parties blame each other, but neither is primarily responsible, although the instant fixes they offer are unlikely to work. We should start by examining the problem:

• Shortage of public housing. This has traditionally been a state responsibility partially funded by federal money. The states have recently ignored the problem, which has created a shortage, putting housing out of the reach of families on minimum income.
• Rising house prices and rising expectations. People borrow more to buy more expensive and larger houses for smaller families. They spend a larger portion of their income on mortgages.
• Rising rents. As house prices rise so do rents and this is made worse by a shortage of houses available for rental. Families renting are spending an increasing proportion of their income on rent.
• Difficulty in buying first homes. The First Home Buyers Grant was designed to help, but since the supply of available homes has not increased by much, it has mainly bid up the prices.

Obviously the above is causing great distress for many people. Ausbuy does not wish to join the blame game and are sympathetic to those in distress and understand they may have made unwise decisions driven by the need to get a roof over their head. We will now look at the policies suggested:

• Allow tax relief for interest on housing loans. This would divert investment from more productive investments and would send up the price of houses. Not a good idea!
• Drive down the price of houses by releasing more land and reducing state government charges. This would help first home buyers, but would leave many existing home owners with negative equity in their homes and facing pressure from lenders.
• Increase the First Home Owners Grant. This would help people to get a deposit, but if the supply of homes did not increase, it would also drive up the prices.

It is easy to be negative, but that does not achieve anything. We would suggest measures which would combine much of the above along with some other measures as follows:

• The States accept that they have a responsibility to provide low cost public housing. This should be financed by a mixture of State and Federal grants and the issue of bonds available to superannuation funds. The developments should be serviced by transport links and have sporting, cultural and social facilities.
• Control the rate of home price increases by progressively releasing more land matched by a reduction in levies. This must not be done precipitously so that a major home price reduction is not provoked.
• Legislate for limits on lending based on a percentage of taxable income or the production of suitable guarantees. Housing loans should not exceed 85% of the value and the ability to service a loan should allow for a 1% increase in mortgage rates. The suggestion of using superannuation money is a nonsense and merely suggests solving one problem with another

The purchase of a first home has always been difficult as incomes are generally lower at that stage. However, if suitable public housing is available there is an alternative. Provided there are more houses built and control over lending, the market will progressively solve the problem. When people claim to have a quick fix they have a vested interest. The developer wants more land to build more houses, the mortgage broker wants more and bigger loans, the real estate agent wants to sell more houses and the politicians want to persuade more people they have a solution.

The problem has been caused over a period of time and will take time to fix.

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1 Comment »

1. Stamp Duties imposed by state governments should be done away with. They cannot be justified beyond a small administration fee for beauracratic paper-shuffling.

   I would like to see a listing of all government charges, fees and taxes - how much they are and how much they rake in each year. I think the average Australian would be suprised at the result, of just how much governments interfere unnecessarily with our everyday lives.

   Comment by Apple — January 16, 2008 @ 4:39 am

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