Housing affordability outlook
Listen to talkback radio, pick up your local paper or switch on the nightly news and you’re likely to come across politicians, property pundits and financial experts debating the cause and effect of housing affordability.
Federal Treasurer Scott Morrison even stated in a recent speech to the Urban Development Institute of Australia (UDIA), that the housing market was “getting away from people”.
“No matter how hard they work or save or even earn, they are finding it harder and harder to get into the market,” he was quoted as saying.
Housing, as we can all appreciate, is one of life’s essential needs, however it is now under threat for many Australian families. From the big cities to burgeoning beach towns like Byron Bay on the NSW far north coast, an increasing number of low-income households are either forced to delay their purchases, buy property where it’s cheaper – typically away from friends, family and the community they’ve grown to love – or give up their dream of owning a home altogether.
The earnings and spending challenges
Before we look at the increased cost challenge of housing, McCrindle Research founder Mark McCrindle says we first need to understand the earnings hurdles faced by young people starting their financial lives.
“We’re finding that young people are going through further study, so while one in five baby boomers has a degree, when it comes to their children, it’s more than one in three,” he explains. “They’re more likely to spend longer in education, which not only racks up a debt that they have to pay off – unlike their parents who benefited from free higher education – but a debt that gets indexed as well.”
That translates to people starting their earnings years later than their parents did because they’re studying longer, “which puts them further behind the economic eight ball, as it were, than their parents at the same age.”
Mark continues: “Secondly, they have new categories of spend like mobile phones and internet costs – just the basics of technology that are a part of modern mainstream life. From the music to the movies, they don’t just buy something and own it but now have to rent, and that comes at a cost.”
The rising cost of living versus the rising cost of housing
Today’s increased cost challenge of housing is further compounded by the fact that the wages growth has not kept pace with housing growth.
In the span of a generation, Mark says we’ve gone from the Aussie dream being attained on one income to it now requiring two.
“That’s just to get that loan approval, let alone pay off the loan,” he says.
Beyond that, Mark explains, is an Aussie dream that has changed from the detached home Census data showed was once the norm for just over three in four householders.
“We’re now seeing more housing approvals in our capitals for units and townhouses than detached homes,” he says. “So there’s a changing of the guard as we head more towards densified living, to the vertical living, so the increase cost is driving us towards unit living instead of the house with a lawn like the old days.”
The impact of housing affordability on the community
Housing affordability is a contentious and complex topic, especially when you look at the effect it has on the make-up of a community. A lack of housing affordability leads to a lot more mobility, in that people are no longer able to live where their parents call home.
“That redefines family in that grandparents don’t always live in the same area, or even nearby, to where their grandchildren are,” says Mark.
“As we move towards more densified living, the number of renters increase because you’re more likely to rent an apartment than a detached house,” he goes on to explain. “According to Census data, the average renter in Australia stays 1.8 years per home. That’s a lot of different communities they’re living in.”
Statistics show that even those with a mortgage average eight years in their current home.
“That means people aren’t buying that home for life, that ‘forever home’, and instead they buy the unit, pay that down a bit, then perhaps move to a townhouse or another home, and then on to more housing stock,” he says.
More mobility results in less engagement and investment in their local community.
“And because people are moving more frequently, they’re having their community needs met through work and social media, for example,” says Mark. “So that does have an impact on the feeling of connection, cohesion, volunteering and investment, and all those things that are part of a strong, long-term community.”
So, where to from here?
McCrindle Research believes that the tax and financial policies for the 21st century “need to meet the 21st century realities”, and that hinges on policy reforms that empower people and families to become part of the solution.
“For us, it’s not about redistribution from a tax perspective, or trying to add artificial barriers to overseas buyers by changing negative gearing and adjusting capital gains, but instead something more straightforward like empowering people to take charge of their own finances, particularly through intergenerational wealth transfer,” Mark explains.
He believes that if parents can be supported in a tax system by passing on some money so their children get a foothold in the property market as a gift, “then that shouldn’t be taxed.”
“I don’t believe it should be considered part of the parent’s assets and instead be treated favourably, similar to estate planning and superannuation,” he says. “You could call it ‘asset recycling’ just like we do in the community where we sell off poles or wires or government land and invest it back into the community.
“We should be able to asset and recycle within a household so that parents can assist their children, because without their support it’s harder to achieve the Aussie dream.”
Policy reforms that allow young people to access their superannuation funds to assist in the deposit of a home could also help ease the current housing affordability challenge.
“Homes are one of the longest ownership classes that we have, and if there can be some structure set up where superannuation can be utilised to help that first homebuyer, and the investment is somehow secure and locked up so that it can sustain them and see some capital gains growth and help them into their future, then that would be a good thing,” Mark explains.
“At the moment, young people are disinterested in super because they’re focused on housing, so if the two could be coupled so that 9.5 per cent [of forty] their own money is taken out of their wages every week, actually could be used for them – not in four years’ time but in the short term. That would certainly engage them in their own financial future.”
Last year in its submission to the Commonwealth Treasury, accounting firm KPMG recommended a number of tax reforms it believes would ease housing affordability. They included:
- Reducing the capital gains tax discount from 50 per cent to 25 per cent in a bid to make property investment less enticing
- Abolishing stamp duty on the transfer of residential property and conflate rates, land tax, insurance taxes and emergency service levies into a new Property Services Tax. 
- Fundamental reforms to retain the supply and diversity of land and housing in both established and growth areas
- Targeted reforms focused on the community groups most excluded from affordable home ownership
Solving the challenges associated with housing affordability, KPMG said in a recent paper , would not only take time but also would “involve a comprehensive reform agenda that targets both supply side and demand side factors as piecemeal solutions are only likely to exacerbate the problem.”
“It seems politicians and bureaucrats have acknowledged affordability is a fundamental barrier for many in society to be able to purchase and enjoy their own homes, but haven’t been able to offer any tangible reforms to help the situation,” the paper stated.