Affordability Crisis
Increasing interest rates continue to dramatically affect housing affordability to the population of Australia. With the rates predicted to scale record highs, again in 2010, the affordability crisis is causing an increasing amount of people to be faced with financial and housing stress.
Within Australian households, studies were performed which indicated the home occupants were required to spend an average of over 30 percent of their gross income on rent or mortgage. It can be assumed that many households were currently dealing with having to spend greater than 50 percent of their income to meet repayments.
The large demand of income required, along with the interest rises have contributed to housing affordability reaching a record low.
RP Data and Rismark noted that the cost of Australian homes rose last year by 11 percent. Deputy Governor of the Reserve Bank, Ric Battellino, added his estimate that the typical home loan deposit, required by first home buyers, had risen to be greater than a year's income.
While numerous schemes have been put into place, in an attempt to alleviate the issue, it is apparent that there is no quick fix. With the withdrawal of the first home owners grant, it was originally thought that house prices would reduce due to the lack of demand. However, the shortage of new homes and land being released has caused analysts to think again. An increase of supply appears to be one key solution, in dealing with the affordability crisis. Chief economist of AMP Capital, Dr Shane Oliver, commented that, "If you release a lot more land and increase supply then that will go some way to solve the issue."
Glen Steven, Governor of the Reserve Bank, encouraged the release of land by saying, ''If we fail to do that - if all we end up with is higher prices and not many more dwellings - then it will be very disappointing, indeed quite disturbing.''
BIS Shrapnel estimated that over 180 000 properties are required, annually, to cope with the rising demand.
However, there is the other opinion that is shared by various economists. Reserve Bank Governor Glenn Stevens, ANZ chief economist Saul Eslake and Rismark managing director Chris Joye, believe that increasing supply is of little benefit if they are not situated in a location where there is demand. Their view is that, rather than focus on releasing more land, communities should be nurtured and built to be more appealing and, in turn, attract buyers to live where the available land is.
