Australia is in the middle of a housing affordability crisis. The big cities of Sydney and Melbourne have seen unprecedented population growth, and growing demand and limited supply of land and materials have pushed housing affordability to extremely low levels. Today we look at the extent of the problem seen by home buyers and mortgage brokers in Melbourne, and some future directions that will be involved in solving it.
House prices defying interest rate rises
Currently, we are seeing house prices that continue to grow, even as interest rates rise. We are hearing quotes like Labor backbencher Kelvin Thompson saying that “Rising house prices … make it impossible for young Australians to own a home of their own”, and Reserve Bank governor Glenn Stevens has also implied that housing prices will continue to rise, wondering whether our children will be able to afford their own homes. For housing to be officially considered ‘affordable’, payments must take up less than 30% of the household income.
Growing population
Melbourne’s population hit 4 million at the end of last year, and the estimated annual population growth is around 75,000 people … in a single year. Kevin Rudd’s talk of a ‘big Australia’ being publicised, along with estimates of 36 million by 2050, have a lot of people talking! So what are some of the real solutions to the housing availability problem that renters, buyers and mortgage brokers are embroiled in?
Expert opinions
Philip Lowe is on the Reserve Bank board, and recently did an interview with ABC talking about the housing affordability crisis. He mentioned several factors which need to be re-thought in order to deal with the crisis:
- The planning process
- Land release
- The zoning process
The availability of credit has also been mentioned as a problem, and Bill Evans of Westpac said in his ABC interview that “Banks cannot just accommodate the demand for credit in the way they did in the past”.
Vertical Living
Vertical living is the obvious solution to a lack of land space. Cities like New York have a strong example for Australia in this regard – the city has 26,403 people per square mile, and is one of the most densely populated areas on Earth. It seems that the value of high-rise living is largely in perception – The Age recently interviewed architect Karl Fender, who said “One of the things about high-rises is that they occupy very little land, so you get a lot of people on very little land and therefore you can be closer in to the facilities such as theatre, recreation, gardens and you have safety, security, view, you have amenity … I could go on and on and on”.
Government-owned housing
However, even with a stronger focus on ‘vertical living’, there are still problems of financing, approvals, zoning, etc. One possible solution in this area comes from Singapore, where around 80% of the population lives in government-owned housing. There is no social stigma attached to government housing in this nation – the Housing and Development Board (HDB) flats are self-contained neighborhoods, though not luxury living. Greater centralisation in the administration of housing could be a possible solution to the problems mortgage brokers currently see.
The Outcome
These solutions are all a little further down the track, however. In the short term, younger families will simply be adjusting their benchmarks for living space. Moving from an apartment while newlyweds, to a unit while growing your family, to an older house or one in the outer suburbs in the middle of your career, is the likely current progression. Housing affordability is very different to what it once was – and all we can do is adjust responsively.
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