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The Housing Affordability Challenge
Judy Yates
September 12th, 2007
Presentation based on results from AHURI NRV3 Final Report and associated
Research Papers from research program on Housing Affordability for Lower
Income Australians led by Judith Yates with Mike Berry, Terry Burke, Michelle
Gabriel, Vivienne Milligan, Peter Phibbs, Simon Pinnegar and Bill Randolph.
Reports available or forthcoming on AHURI website (www.ahuri.edu.au)
Outline
 1. What’s the problem?
 2. How did it come about?
 3. What can we do about it?
What’s the problem?
 At individual/household level
 increasing costs of access to home ownership
 large numbers in mortgage stress
 declining home ownership rates amongst young
 large numbers in housing stress in private rental
 significant homelessness
 At economy wide level
 spatial segregation
 labour market inefficiencies
 intra and intergenerational inequities
 potential macroeconomic instability
Income and house price trends
Australia 1960 - 2005
120
100
Index
80
Real house prices
Real house price trend
Real per household income trend
60
40
20
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Source: NRV3, FR
HIA Affordability index:
repayment to income ratio measure
$500,000
250
$400,000
200
$300,000
150
$200,000
100
$100,000
$0
1984
1988
1992
1996
2000
Median FHB house price (LHS)
Housing affordability index (RHS)
Source: HIA-CBA Affordability Report, various years
2004
50
2008
Declining access to home purchase:
deposit gap/income (AWE) ratio
$500,000
400
$400,000
300
$300,000
200
$200,000
100
$100,000
0
$0
-100
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Median real house prices ($2006) Australia (LHS)
Deposit gap/income (AWE) (RHS)
Source: NRV3, FR; NRV3 RP11
Implications: age specific HO rates
(%)
80
70
60
50
40
1971
1976
1981
1986
25-29 years
Source: census data, special tables
1991
30-34 years
1996
2001
2006
35-39 years
Key message 1
 Housing affordability problems are structural
 began 30-40 years ago (when inflation switched focus
on housing from providing shelter security to
providing wealth security)
 exacerbated by changes in CGT (in 1986 favouring
owner-occupiers; in 1999 favouring investors)
What’s the problem?
 Housing serves a dual role
 Consumption – provides shelter
 Investment – provides wealth
 Affordability problems arise because
 Role as asset for wealthy crowds out
 Role of shelter for less well off
Housing stress
Lower income
private renters
Incidence of stress (%)
100
Lower income
purchasers
80
60
Moderate income
private renters
40
20
Moderate income
purchasers
0
0
100
200
300
400
Numbers in stress ('000s)
Source: NRV3, FR
500
600
Key message 2
 Housing affordability problems are greater for
renters than for purchasers
What’s the problem?
 At individual/household level
 increasing costs of access to home ownership
 increasing mortgage stress
 declining home ownership rates amongst young
 large numbers in housing stress in private rental
 significant homelessness
 At economy wide level
 spatial segregation
 labour market inefficiencies
 intra and intergenerational inequities
 potential macroeconomic instability
Segregation
Change in low income private renters:
Sydney, 1991 to 2001
Source: Randolph and Holloway (2007)
Segregation
Change in low income private renters:
Melbourne, 1991 to 2001
Source: Randolph and Holloway (2007)
Inefficiency
Source: NRV3, RP5
1,500
Net worth quintile
Mean net worth ($'000s)
Inequality
1,000
500
0
Q1 Q2 Q3 Q4 Q5 All
Other net worth
Other property
Source: NRV3, RP10
Owner-occupied housing
1000
Inequality
800
600
Owner400
occupiers
200
0
Others
1524
2534
3544
4554
5564
1524
2534
3544
4554
5564
6574
75+
All
400
200
0
6574
75+
All
Other net worth
Other property
Source: NRV3, RP10
Owner-occupied housing
Instability
Source: NRV3, RP4
How did it come about?
 From demand pressures
 increasing number of households (population growth +
decreasing household size)
 increasing incomes
 increased availability of mortgage finance
 increasing wealth assisted by lack of capital gains
taxes on owner-occupied housing
 spatial concentration of demand (in urban and coastal
regions)
How did it come about?
 On supply side
 increasing cost of land
 time taken for release of new land
 move to user pays for infrastructure financing
 increasing scarcity value well located land
 displacement of FHBs by rental investors (encouraged
by taxation incentives)
 reduced supply of affordable private rental housing
 declining supply of social housing
Dwelling price gradients, 1992 to 2002
Sydney
Melbourne
Source: PC (2004)
Change in no. dwellings by size: 2001 to 2006
20.0
Growth 2001-2006 (%)
15.0
10.0
5.0
0.0
0
1
2
3
4
-5.0
Number of bedrooms
Source: 2001,06 census tables (20680-x49, i20)
5+
All
Distribution of private rents, 1996, 2001, 2006
% of rental dwellings
25
20
15
10
5
0
0
100
200
300
400
500
600
Rent ($2006 pw )
1996
2001
2006
Source: 2006 census tables (20680-t18), CPI adjusted
700
Key message 3
 Many established home owning households have
benefited significantly from increases in house
prices
 through increases in value of owner-occupied housing
and
 through increases in value of rental housing
 Demand for well-located housing from
established and well-off owners has fuelled
affordability problem for newly formed and renter
households
What can we do about it?
 1. Make investment by wealthy less desirable by
reducing scarcity of desirable land
 Increase supply desirable land (infrastructure,
transport etc)
 Reduce desirability of scarce land (decrease tax
incentives for owning land; increase density)
What can we do about it?
 2. Increase housing available for shelter (and
investment) for low to moderate income
households
 Increase supply affordable rental housing
 Help marginal purchasers stay in their homes
Specific policy ideas?
 1. Develop a national affordable housing
strategy
 2. Better targeting of housing assistance to low
and moderate income households
 3. Strategic use of infrastructure investment
References
 Berry, M. (2006) Housing affordability and the economy: A review of
macroeconomic impacts and policy issues, NRV3 Research Paper 4, AHURI
 Berry, M. (2006) Housing affordability and the economy: A review of the labour
markets impacts and policy issues, NRV3 Research Paper 5, AHURI.
 HIA-CBA (various years) Affordability Report (courtesy HIA)
 Productivity Commission (PC)(2004) First Home Ownership, www.pc.gov.au
 Randolph, B. and Holloway, D. (2007) Commonwealth Rent Assistance and
the spatial concentration of low income households in metropolitan Australia,
AHURI Final Report No. 101.
 Yates, J. (2007) Affordability and access to home ownership: past and
present, NRV3 Research Paper 10, AHURI forthcoming.
 Yates, J. et al (2007) Sustaining Fair Shares: The Australian Housing System
and Intergenerational Sustainability, NRV3 Research Paper 11, AHURI
forthcoming.
 Yates, J. and Milligan, V. (2007) Housing Affordability: A 21st Century
Problem, Final Report, National Research Venture 3: Housing Affordability for
Lower Income Australians, AHURI forthcoming.