For many Australians, deciding whether to rent or buy a home to live in is a choice, and over time their preferences around this will undoubtedly change or evolve. But for others it’s more a matter of affordability.
Housing affordability in Australia
According to AMP Capital’s chief economist Dr Shane Oliver, housing affordability has been declining over the last two decades, with the ratio of average home prices rising from a norm of around three times annual disposable income, to around six times across Australia, and this is much higher in a number of cities, including Sydney and Melbourne.
How does this compare with other countries?
The 12th Annual Demographia International Housing Affordability Survey (2016 edition: 3rd quarter 2015) which covers 367 metropolitan markets across nine countries, rated Sydney as the second least affordable housing market, next to Hong Kong.
In comparison, the third least affordable was Vancouver, with Auckland, San Jose and Melbourne coming in as fourth least affordable. San Francisco was fifth least, London 6th least affordable and San Diego and Los Angeles coming an equal 7th.
Home ownership decline and the reasons why
Home ownership too has been declining since the mid-1990s. The latest data available from the ABS shows that households who owned their homes (with or without an outstanding home loan debt) accounted for 67.5% of all households in 2011/12 compared to 71.4% in 1994/951.
So, what has contributed to the decline in affordability that has been a major factor behind the decline in home ownership in Australia? We called on Shane Oliver to provide some insight.
He says a significant driver is the constrained supply of dwellings. While population growth has been solid, leading to strong underlying demand for property, the supply of dwelling has failed to keep up over the last decade. Land release controls are very stringent in and around Australian capital cities and development restrictions are quite tight, compared to say cities in the United States. Despite a surge in construction of apartments in the last year, Australia as a whole still has an overall shortfall of properties and this has driven prices higher.
Concerns around the impact of negative gearing, foreign buying and buying in SMSFs are really a sideshow compared to the fundamental failure of property supply to keep up with demand. He suggests that until we can address the supply issue, affordability is likely to remain relatively poor.
Shane suggests another driver may be a change in the attitudes of millennials who may be less motivated to buy their own home because of the financial commitment. In other words the love affair with home ownership may have faded a bit as younger generations prefer the flexibility that comes with renting. It’s hard to disentangle this from the affordability issue though. Then there are social changes to consider, such as people partnering up later in life and delaying home ownership.
Is owning a home still one of your key goals?
Owning your own home has, and continues to be, a key goal for many Australians. Yet for others it’s an unachievable dream or a dream that’s been delayed for a while.
If you’re looking to invest in property soon, check out AMP Bank’s home loans. Or if you’d like professional advice to work out how you might still achieve the great Australian dream of owning a place to call your own, call us on 131 267 or you can find an adviser online.
1 4130.0 - Housing Occupancy Costs, 2013-14, Australian Bureau of Statistics
This is a follow-up article about whether you would be better off renting or buying a property.