Housing supply is not the reason for worsening housing affordability

We heard again and again that housing supply is the problem for runaway house prices, that the government needs to increase housing stock to keep up with rising demands.

But we have been sorely mistaken...So take a deep breath and let’s discover the real cause of the affordable housing crisis. 

We don’t have a housing supply problem

The first thing to know is that the number of homes is pretty much keeping up with growth in the number of households in recent decades.  It has been pointed out by the Reserve Bank’s submission to the inquiry. 

And Let Dr. Cameron Murray’s findings be further proof of that. Back in March, he had debunked the myth that restricted supply is the problem. 

As it turns out, there is enough zoned capacity to cater for projected growth. But developers driven by higher sales prices would only select sites, build and sell in strong markets. So locations with the highest initial property prices were the most likely to be developed. 

No one complains about the fact that we have been on a money printing spree since 2008 (hence easier access to credit) and we have been treating housing as a financial investment. Further ease of planning regulations won’t get us out of this perpetual cycle. 

Australian housing affordability continues to deteriorate

According to the ABS, Australia’s overall homeownership rate fell from 70% to 66% over the last 20 years. Over the same period, the number of households renting their home from private landlords increased to 27%.

Over the last 40 years, the median house price in Melbourne has jumped 21.9 times higher. As of this year, the price of a typical Melbourne home is 10.3 times higher than annual earnings, compared to 2.8 times in 1981. 

This week’s auction market was recorded as the second busiest week of the year with 3,562 homes taken to auction, up 8.2% from the previous week. 

It left us wondering: is there a future where everyone has a designated piece of land to call their own, to raise their family and grow old?

Unfortunately, the very system is fundamentally unfair. Housing is attractive as an investment for those who can afford it (some can afford additional properties). It’s also more favourably taxed than other forms of investment. 

The housing market has become out of reach for many Australians with each passing day. The affordability issue has put a lot of stress and strain on families. People are putting their whole life down to busyness, yet still have a long way to go to break in the property market. 

You may think you’re doing the right thing by managing your credit score, saving up for the 20% deposit for what seems like three lifetimes, only to be greeted by heavy bidders with superior borrowing power at every auction. 

CONCLUSION 

The skyrocketing housing costs are more of a demand problem than a supply problem right now. The markets have been fuelled by those wanting to buy second homes, holiday homes, homes to rent, or to flip. There is a drive to bring up prices as much as possible. 

Many are hoping the rise of interest rates could cool down housing prices. But unless house prices actually fall significantly, house prices will continue to outpace wages and people are already priced out of the market. 

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