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SUMMARY
Introduction [1]
The purpose of this paper is to present an overview of the Housing
affordability debate, in particular as this relates to NSW. It should be noted,
however, that the focus of the paper is on housing affordability in
metropolitan areas and not in rural and regional NSW where the issues concerned
are somewhat different in nature and scale. To put it another way, a whole
series of different housing markets operate in NSW.
Home ownership is the most common and most desired form of housing in
Australia, yet for many it is increasingly unaffordable. The latest Annual
Demographia International Housing Affordability Survey
compared housing affordability in metropolitan markets in Australia,
Canada, Ireland, New Zealand, the UK, the US and Hong Kong. It looked at median
multiples (i.e. the median house price divided by the gross annual median
household income). The survey found that the major metropolitan markets in
Australia were all severely unaffordable (as they had a median multiple greater
than 5.0); and that of the 82 major metropolitan markets in the countries
surveyed, Sydney was the second most unaffordable (it had a multiple of 9.6).
As house prices have increased, so too have rents. In fact, the largest group
of households experiencing affordability problems are households in the private
rental market. High levels of rental stress mean that affordability is low and
people are less able to rent housing that meets their needs. As with home
ownership, affordability in the NSW rental market is also in decline. In
2007-08, 57 percent of low income households in the private rental market in
NSW were in rental stress. This was the highest of all Australian jurisdictions
and significantly above the national average of 47.5 percent.
Defining 'housing affordability' [2]
Although there is no single agreed definition of housing affordability, the
term refers broadly to a person's ability to pay for their housing. Housing
affordability can be distinguished from the term "affordable
housing". In Australia, "affordable housing" is often used as an
alternative to terms such as "public", "social" or
"low cost" housing.
The implications of housing affordability [3]
Spatial disparities in housing affordability may influence the labour market,
in particular by discouraging people from working in low affordability areas.
High housing costs accentuate financial hardship for low income households by
leaving too little in the household budget for non-housing expenses and place
some households at risk of being unable to pay their housing costs. High
housing costs and low affordability can also result in a widening of the wealth
distribution between those able to purchase housing and those who cannot.
Housing affordability has implications for the economy, at the national and
sub-national levels.
Measuring affordability [4]
While it is generally accepted that there is a housing affordability problem in
NSW, there is still debate over the threshold beyond which housing is
considered unaffordable. Five key measures used to calculate housing
affordability are discussed:
the '30/40' rule;
residual income;
the accessibility/ deposit gap;
house price compared to consumer prices or incomes; and
the effects on home ownership rates.
The review of these methods of measuring housing affordability suggests that
each method produced a different result.
Home ownership affordability [5]
House prices in Australia have risen faster than average household incomes
since 1970. In 2007-2008, 49.3% of low income households with a mortgage in NSW
were found to be in mortgage stress (nationally 46.6%). Sydney is considered to
have the most heated market for private housing amongst Australian capital
cities. From September 2008 to September 2010, median prices for non-strata
dwellings in Sydney increased by 22.8% and by 14.9% across NSW.
According to Shelter NSW, in September 2010, 1% of home purchase stock was
found to be affordable for very low income households, 6% for low income
households, and 25% for moderate income households.
While the overall trend in house prices in NSW is upward, there is some
variation amongst local housing markets in terms of the extent of the increase.
For key workers (notably, police, teachers, nurses, fire fighters and ambulance
officers) looking to buy a house, 84% of Sydney LGA's in 2010 were
unaffordable. In regional NSW, 75% of LGAs were affordable, with house prices
less than 5 times the salaries of key workers.
Rental market affordability [6]
Although affordability problems for home buyers tend to receive the most media
attention, the largest group of households experiencing such problems are
households in the private rental market. Shelter NSW reports that in 2006,
there was a shortage of 44,000 affordable and available private rental stock
for very low income households in Sydney, 5,900 in Newcastle and 3,200 in
Wollongong. In 2007-08, NSW recorded the highest percentage of low income
households in the private rental market in rental stress at 57% (nationally
47.5%). Shelter NSW further reports that in NSW in September 2010, 13% of
rental stock was affordable for very low income households; 31% for low income
households; and 68% for moderate income households. Most affordable rental
stock was located in outer suburbs which tend to have lower levels of
employment opportunity and significantly poorer public transport
infrastructure.
Factors affecting housing affordability [7]
The causes of housing affordability problems are said to be complex and
diverse, with major driving factors found both within the housing system and
beyond it. Two pivotal factors are the supply of, and demand for housing, with
a host of other issues in turn influencing housing demand, including: higher
incomes; demographics; lower interest rates; speculative demand; and taxation
influences.
Addressing affordability [8]
NSW local and State Governments, in cooperation with the Commonwealth
Government have sought to implement a range of measures to improve housing
affordability. The National Affordable Housing Agreement (NAHA) provides a
framework for the different levels of government to improve housing
affordability. The Commonwealth Government has introduced measures to address
affordability. These include First Home Owner Grants and help in the private
rental market through Commonwealth rent assistance. Policies of the O'Farrell
Government include the extension of the Empty Nester Transfer Duty Concessions
and repeal of the Homebuyers Tax - as provided by the Duties Amendment
(Senior's Principal Place of Residence Duty Exemption) Act 2011 and the
Real Property Amendment (Torrens Assurance Levy Repeal) Act 2011
respectively.
The former NSW Labor Government sought to address affordability by establishing
the Centre for Affordable Housing and introducing the First Home Plus One
scheme. It also adopted planning mechanisms to improve affordability and
increased the supply of land for housing. Some Sydney councils have introduced
measures to improve housing affordability, often through the inclusion of
planning provisions.
Stakeholder proposals [9]
Interest groups and stakeholders have suggested a range of solutions to the
housing affordability problem in NSW and across Australia. For example, in a
policy paper prepared by the Property Council of Australia, the supply of land was
identified as the "key factor" affecting affordability. According to
the Australian Institute of Architects, long term
housing affordability requires the incorporation of environmentally sustainable
design techniques into the design of new homes and the modification of existing
homes. The Institute has emphasised that affordability relates to a household's
access to transport, services, facilities and employment and education.
Conclusion [10]
Extensive use has been made in this paper of the 2008 Senate Committee inquiry
report, both in respect to the empirical research about housing affordability
and in relation to the more discursive issues involved. The Executive Summary to that report started by stating:
The majority of Australians aspire to home ownership. It should be an
aspiration that through prudent management of household finances they are able
to realise. Currently, there is a significant problem with housing
affordability in Australia. In certain regions of the country the problem is
particularly acute.
The issue of housing affordability is of major concern to many NSW households,
as part of the broader concern about cost of living pressures. It is an issue
which can be considered from the perspective of individual households, as well
from a range of other levels, from State planning and land release policies to
debates about macro-economic and broad demographic trends.
Housing affordability is an issue for all levels of government in Australia.
The challenges are many and substantial. The University of Western Sydney Urban
Research Centre has commented in this respect:
Though much has been written on housing affordability in the Australian
context, it has proved difficult to secure agreement about the right mix of
responsibilities for housing policy among the various tiers of government and
how best to address housing affordability.