gm H Factor - The Bigger Picture - Housing Affordability
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The Bigger Picture - Housing Affordability

Posted: 15/06/2015 6:07:28 PM by H Factor | 1 comments

A foundation of Australia’s economic stability has been the attainability of home ownership.  At The H Factor, we care about this issue because there are implications for business and society that are not being given the attention that is needed in the current reporting of making housing affordable.

We encourage business and other community leaders to engage on this issue, and broaden the conversation to also include the equally valid aspirations of business ownership, stable employment, retirement independence, and an egalitarian society.

There has been a great deal of media attention given to housing affordability recently, but most of it has centered around growing house prices and the possibility that the housing market is in a so-called “bubble”; possibly driven by the tax incentives provided to those who own a home as an investment.

Affordable housing has huge implications for our society, so it is important that we understand the complexity of the issue.

It is especially difficult for younger people to purchase their first home.  According to the Australian Bureau of Statistics, in 2011 only 34% of people aged between 25 and 34 own their home, compared to 46% for the same age group just a decade ago.

Further back, in 1990, mortgage debt represented 115% of the average income for someone aged between 25 and 34.  In 2011, it represented 241% of average income for that age group.  Equally significant, for people over 65, mortgage debt represented 80% of average salary in 1990, and 200% in 2011.

The housing “bubble” argument is supported by the recent reports that more than half of current housing purchases are made by investors, rather than by owner-occupiers.  Some argue therefore, that urgent tax reform is needed so that the market is, at least, less attractive to investors.

We need to think more broadly about this issue, and be sure our political leaders have full awareness of it, because any policy changes based on an overly simplistic view of ‘investors versus owner-occupiers’ could have terrible negative consequences that impact well beyond housing affordability.

We believe that these issues require consideration:

  • Small businesses are the largest employer in Australia.  A great number of those businesses are ultimately funded by the equity the business owners have built up in their homes over time.  If house prices deflate, then how will that impact those businesses, and the people they employ?
  • If the financing of those businesses is dependent on the value of the homes of their owners, then will stagnant or deflating prices impact future business investment?  If so, for how long?
  • What is the actual underlying demand for housing?  Is it safe to assume that the supply of houses is sufficient for the number of people needing a place to live?
  • Should housing prices deflate, then what will be the impact of that on the security of our banking sector?
  • For retirees, how will stagnant or deflating house prices impact their retirement savings, and therefore the need for government support?
  • What is the long-term financial impact for younger people if home ownership is unattainable?
  • What might the average suburb look like when more people are living in a rented home, rather than a home they own?
  • For families, is there a potential impact of renting a home, rather than the stability of a home owned for the long-term?

We believe that all these questions need contemplation.  A deeper and broader conversation is encouraged, especially compared to the media coverage to date.



Sandra | 17/06/2015 10:10:39 AM

Great article Andrew. You have picked up on something that I don't think has been considered in recent media coverage. The Government and Reserve Bank is frustrated with low business investment, and can't understand given 'perfect' conditions with low interest rates. However, if you are a small business owner and withdrawing say $50K per annum just to pay off your median home mortgage, that's money that can't be invested in your business. Low business investment is the opportunity cost of high housing prices relative to income.

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