It may be the great Australian dream but the notion of owning a quarter acre block in the suburbs is fast looking to many like an unachievable fantasy.
Across all age groups, the aggregate proportion of all Australians who own their own home contracted from 71.2 per cent in 1996 to 66.9 per cent in 2011, according to the most recent ABS figures available.
More worryingly, home ownership rates amongst the 25-to-34 year old age group have slumped from 52.2 per cent to just 42 per cent over the same period, a decline of 10.2 per cent. Outright home ownership (home ownership without a mortgage), which stood at 11.1 per cent in 1996, is now a reality for less than two per cent of this age group.
The situation is particularly bad for those on low incomes; more than seven in 10 low income single parent households with dependent children, for example, live in rental accommodation, according to the ABS.
Moreover, things are getting worse. Having accounted for between 20 and 25 per cent of new housing finance loans throughout the 1990s, new home buyers made up only around 15 per cent of successful housing finance loan applicants throughout the first three months of this year, suggesting that they may be being displaced by other market participants.
All this is being driven by a clear lack of housing purchase affordability; in 1994, median house prices were equivalent to around 250 weeks or less than five years of the average working wage; by 2014, that number had risen to 426 weeks or more than eight years, BIS Shrapnel reckons.
Furthermore, housing within reasonable travel distance of the best employment opportunities is becoming harder to find. In the past decade alone, those living in Melbourne have had to move an extra 15 kilometres away from the CBD to be able to purchase an affordable house, University of Sydney Associate Professor Nicole Gunnan told an ABC radio program in 2013.
The upshot is that houses are becoming more difficult to afford and those that are able to enter the market are being forced further and further from city centres.
While some media reports blame foreigners, evidence of buyers from overseas driving up local prices an overall level is thin on the ground. In 2013/14, Foreign Investment Review Board figures indicate that foreign residents gained approval to purchase 15,134 new or newly built dwellings and 7,920 existing dwellings. By those figures, non-resident purchases took up less than 10 per cent of the market for new housing stock and accounted for a minute percentage of existing home sales.
More plausible is the notion of first-home buyers being crowded out by investors, who accounted for 41 per cent of all loans for dwelling purchases in the month of March, up from around 36 per cent in the same month nine years earlier. These investors appear to some extent to have edged out first home buyers who are accounting for a declining share of new home lending. Their impact is further amplified by the fact that more than eight in 10 investor loans are for the purpose of purchasing existing rather than new dwellings (up from four in 10 in the 1980s). This implies that investor activity is largely focused upon competing for existing stock and typically does little to encourage greater housing supply.
Arguably the biggest cause, however, is that Australia does not appear to be building enough homes to meet demand – a situation brought about by a surge in population growth which has not been matched to the same extent by growth in new residential construction. While Australia’s population typically grew by around 200,000 per year throughout most of the 1980s and 1990s, our status as a relative safe haven after the GFC saw this surge to 378,000 people per annum since December 2008, according to an HIA report last year.
The pace of new construction has picked up from around 145,000 dwelling per annum throughout the 1980s and 90s to an average of just over 156,000 in the decade to June 2012, but by nowhere near enough to absorb the population rise. Because of this, BIS Shrapnel reckons Australia has a fundamental housing deficit of around 100,000 homes, around half of which are in Sydney.
Given this, it would seem industry assertions that the best way to address the housing affordability crisis is to unblock barriers to supply do carry a fair degree of truth, self-serving though these suggestions may be. Tightening compliance with foreign investment rules will also help, albeit only to a relatively small extent.
Some have suggested moves to limit investor activity by, for instance, restricting the use of negative gearing. While this might reduce the degree to which investors compete with first home buyers within the existing housing market, such moves could have unintended consequences, such as reducing the volume of stock available in the rental market. Market interference of this type could also bring with it a host of other difficulties; restricting negative gearing on residential property without doing so for all asset types, for instance, would be problematic. Accordingly, these types of moves – which do nothing to address the fundamental deficit of supply – should ideally be rejected.
The dream of owning your own patch is closely woven into the Australia psych.
For many, though, this is fast turning into an unattainable fantasy.