Australia's Housing Shortage: Is it just an urban myth?

I have been accepting as "fact" for 8 years that Australia has a housing shortage. But what if that was not the case. Would you still buy a home? Is that the question?
Investment Banker Mortgage Stanley recently released research that pointed to Australia actually having a glut of housing, rather than the much touted housing shortage we have all heard about that keeps growing like an evil magic pudding.
Admittedly, I have heard about this housing shortage since 2003 and wondered where all the tent cities were being erected in Australia to justify these claims.
Maybe we will see fake one's sprouting up all over Australia soon?

Housing Shortage, Fact or Myth:Australia goes from an estimated 228,000 housing shortfall to a 341,000 home glut in the time it takes to produce a report!

So how did we get this 569,000 housing turnaround in weeks?

There has to be a reason that house prices have not collapsed in the wake of the GFC.

The estimated 228,000-home shortfall, cited by everyone from the construction industry to economists at the major banks as evidence for why prices remain so high, may, in fact, be an excess of 341,000 homes, according to Morgan Stanley.

Whether the new figures are accurate will only become clear in time, as house prices either level off because real estate is scarce, or prices fall and attract more scrutiny about the fundamentals of the market.
But what if there are other reasons why home prices are staying high in the gloom. Here's a few.

1. Real estate is worth what someone else will pay you for it. People have not been willing to pay what many buyers want, but...
2. Real estate is also worth what you are prepared to let it go for if you are selling. When people have not been able to sell at the price they want or even need, they are hanging on to it.
3. If you have a job you can afford the mortgage till things come good. In Australia's case the job market never went bad, so people can hang onto property for longer.
4. If you hang onto to the old property, then real estate agents are not going to be happy, because you don't effect your sale, and you therefore can't buy the next home. This is exactly what is happening.
5. People are now hanging on to their homes longer and their mortgages longer.
6. From a generational point of view, people are living longer and staying in their homes for longer. And the Government assists this with carers and other services to help people stay out of nursing homes longer.

But the all-important nature of house price movements underscores a bigger issue: we simply don't know what impact elevated property prices have on other aspects of the economy because we don't have a long history of clean, robust and comparable data to rely on.
But I will give it a try here.

1. When you pay too much for a home, you have to hang onto it for longer or risk going underwater.
2. When you pay too much, your mortgage is bigger than it should be. That makes banks happy and rich and that means that you pay more of your income in mortgage repayments than you should be, for the next 30 years. That causes a thing called mortgage stress. As these things have happened then we can say people have paid too much for their homes in the recent past.
3. Are they still paying too much? That will be clear in 2 years time. If prices go down, then yes they are still paying too much today.

In Australia, there is no clear, undisputed authority of information in this area crucial to the economy.

In the US, the S and P Case-Schiller index, which measures changes in prices of the same properties over time, and that is only 25 years old. So where do investment gurus pull 100 year figures from?
The problem I have with any long range figures is that they only rate the homes that are still standing,and over 100 years maybe more than half the housing stock may be demolished. SO counting just the best ones that are left is a hardly a way to determine the appreciation of housing generally. Its taking a generalisation and making it specific. But what about the home that was bought, and later demolished. Surely its worthless. When these homes are included in the overall picture, actual returns are lower.

In Australia, Residex's repeat sales index goes back to 1991, in the middle of a Sydney house price correction on 17% pa interest rates just before the two-decade run-up in house prices began.

One thing for certain is that it is unwise to expect the "boom conditions" to persist indefinitely. That is a interesting term. I thought the boom finished in 2003 and we got ripples in 2006, and last hurrah in 2010?

In 2010, Reserve Bank governor Glenn Stevens appeared on breakfast TV to warn viewers it was a mistake to ''assume a riskless, easy, and guaranteed way to prosperity is just to leverage property''.
That advise I was giving out from 2005, but nobody wanted to listen back then. That's why home prices went too high. Are they still too high. Well RBA Governor Stevens says no, they are not.

Source; Mr Mortgage

Mortgage Crunch for Australian Landlords?

As housing values thaw across Australia, so does the dreams of a nest egg built on a housing bubble.
Australian real estate has avoided the mass loss of property values seen in the US and the UK, partly because Australia's economy was sheltered from the problems of the US lead GFC.

Better banking regulations and less credit to sub prime lenders saved Australia

In Australia we did not see the shonky lending practices that allowed people to buy homes they could not afford, and then refinance on the ballooning growth of their asset to make the repayments and buy cars and such till the music stopped.
So the music didn't stop suddenly like it did in the US. But property values in most capital cities are heading south, and look to be lower for many years to come. [in the US they say that is a whole generation, which is 30 years, because nobody will believe that property is a good investment in the US after what was allowed to happen over there.]

Two recent RBA interest rate drops in a month have not encouraged home buyers to invest in a home. They have seen values shrink and know there may be carnage ahead. The mum and dad property investor and landlord.

Trouble ahead for Australian Property Investors.
It is estimated that there are 1.7 million landlords in Australia, and most have wagered their own homes on property values rising.

Formula for success or homelessness?

1. The idea was that you have equity in your home, and you use that as the deposit on the next property. 
2. You then get a five year interest only loan [to minimise repayments and maximise the tax offset of those repayments.] Works a charm when homes prices rise. 
3. But like all leveraged investment, they can spell doom if values go against you longer than you can hold out. If property values fall continuously it will all go pear shaped for property investors.

For the mum and dad property investor that means as long as you both have jobs, [the can meet the repayments], and as long as the loan does not have to be refinanced. This is where its going to hit the fan in my view. Here's the thing. As long as these landlords can refinance, they are safe.

The Euro could be the last straw that breaks the back of the Australian property market
If the Euro crisis does not end well, we should expect the worst, because we would be in for a credit squeeze. The banks will then refuse border line loans, and that will send properties falling further. As these values were the basis on which the loans were first made, if these values don't stack up, then these Landlords will be forced to sell or find or funding from non bank lenders.
If we in the non bank mortgage industry can't find the finance, then property will flood the market.

So this is the thin edge for property investors in Australia's housing market.

And here's the real reason that this property values are likely to tank.
Australia's home values have risen far beyond what's affordable for Australian homeowners and home buyers since the 1980's.
What has happened is that as the wife went to work her wages were snaffled to be part of the affordability of home buyers.
This in my view is what has caused the housing inflation. The winners were real estate agents who got to drive "mercs" and "bemmers", and the banks who got to serve to mega loans. The losers were all those who got a 30 year mortgage based on two incomes, because that meant you could pay more than you could have before.
House prices and salaries: The gap
Housing affordability and credit guidelines have gone from 30% of the average Joe's gross wages on a twenty year mortgage, to 40% of Joe and Joe's partners wages on a 30 year mortgage! Some people are paying 50% of their wages before tax. The solution? Get more credit in the shape of a credit card!

So in real terms homes cost double what they used to. And we have the credit to pay for all this! Thanks for that!

That's why the US experts keep saying that Australian home values will fall 40%. If economists were running the housing market, this what the price drops would look like.
But they don't. However we must factor in their savvy, and the fact that the Australian Government may be paying attention.

So I feel that the values may have 20% still to fall, and that is if it does not get real ugly in Europe. 

If it does then banks will shut the lending gates and the amount of loans that they will be able to do will shrink. That mean less buyers and more property.
Can you here the sound of a distant Property Crash getting closer?

2012 should be the year Australians, get their credit cards paid out, their car loans paid off, and get a 100% mortgage offset account home loan that allows them to stash their savings against their mortgage, helping to pay it off sooner, and also having the cash their for a rainy day.

Source: Rick Adlam, Mr Mortgage

Housing Market-Australia needs to reduce the cost of land for new homes to improve housing affordability

Is increasing land supply the real key to bring down house prices?

Australia's housing market is a key driver of the domestic Australian economy. This article attempts to shed light on the true cause of our high home prices and that over priced land is the the real cause of our our over priced homes.

The case for massive land development for new home construction

New homes not only provide work for hundreds of thousands of construction workers and tradies, they are the main customers of hardware, timber, roofing, and concrete industries.
Once a new home is built there is a flow on demand for cabinetry, curtains and blinds, kitchen equipment, stoves and appliances, furniture, tiles and carpets, landscaping and out door living, with patios, sheds, swimming pools and spas. Yes, its big business and it drives much of the big ticket retail spending in Australia.

This is the type of spending that has stopped in recent months, and the reasons are obvious, New home sales are down, especially in flood affected Queensland.

Is Housing Australia's biggest asset?

The housing market has a $4.2 trillion capitalised value

Housing construction is at a 12 month low, and that theretail sector is having the worst period in 20 twenty years, we can quickly see that the two powerhouses of Australia's domestic economy are connected, and that when new home sales fall, so does retailing.

In fact I would say that there is also a smaller connection with established home sales and retail sales of house hold items, simply because moving home creates new needs for home buyers that these retail sales satisfy.

The problem for Homeowners credit over supply is being reigned in.

In case you haven't noticed f you are a homeowner, expect to see your home values shrink. SInce the 1970's House prices have risen above inflation and income growth. The main driver was the baby boomers buying their first home, their second home and until recently, investment properties.

Many baby are now slowing down, and are cashing in to downsize, become grey nomads or retire. In the future these homeowners will move to retirement villages and nursing homes.

Average home prices in Australian capital cities fell 2.1 per cent in the March quarter, according to the Australian Bureau of Statistics.
This will continue as baby boomers leave the housing market, sell off their investment properties and hit the road as grey nomads. Their spending patterns will change dramatically once this occurs.

The impact of the GST on House Prices

The GST and first home owners grant was a major driver inflating house prices
The worst thing that the Howard Government did to house prices was the GST. Besides lifting house construction prices instantly, it also drove many older small builders out of building and into early retirement.

That was followed by the First Home Owners Grant, which added fuel to the home prices inflation fire.

Many people point to the First Home Owners Grant as the problem for raising house prices. They forget that this was brought in because of the GST to compensate the first home buyer for increases in the cost of building a home, brought on by the GST.
One or the other would have increased prices of all homes, The two together created a boom for real estate sales that rippled through the past decade. That caused the interest rate hikes we have to wear now.
When you consider that this was at the same time as the last wave of the baby boomer effect in 2002, a perfect storm for inflation was created. Now the new first home buyers have to pay for all of that, and many are not interested in homeownership. They have better things to do with half their take home pays.
After all, renting is cheaper, and you can invest the difference in a liquid investment, and with the recent figures of falling house prices and the Reserve Bank of Australia's  constant threats to raise interest rates, its easy to understand why new home buyers are being over cautious.

Land inflation the hidden cost of new homes, not construction costs

As I have been saying for some time, GST have increased new home costs, as have the increased requirements in building codes around Australia. But these have added little to the cost of a new home. The main cost increases have been due to land cost increases and Government charges on land development.The drivers for those increases ate the First Home Owners Grants at the same time of land development shortages and deliberate scarcity sales tactics by land developers.

In the year 2000 a block of land was around $70,000 [or less]. In 2010 the cheapest block on the Sunshine Coast was $294.000. Yet land was not supposed to have GST on it!If you leave things to the "free market" you will get ripped off.

Some say that Australian houses are ''overvalued'' and should be halved. I don't believe that homes in Australia are over value is nearly as high, or that house prices will fall much more than they have already. But they are too high right now.
But our house prices being the world's highest, does not make sense, given our abundance of land. Our home values are above that of Hong Kong. But we have abundant land and Hong Kong is a tiny island and has land scarcity. Can you see something wrong with this?

Housing demand is elastic. It depends on the home prices.

Can you remember when people were saying we were 200,000 home short of what we need?Well what happened to all those house buyers? They have evaporated
Some would argue that house affordability is driven by interest rates, others by supply and demand, others by incomes.
I believe that these are silly arguments. As we in Australia have abundant land on which to build, it does not make sense that land prices are too high and in short supply.

Government needs to step in and ensure Land is developed to exceed housing demand if it wants homes to be affordable.

We cannot expect private enterprise to fix this, because land developers benefit by high prices, and high prices are driven by scarcity, which they use to keep prices too high.
Also we can't expect builders to build homes before they have house buyers, with the purpose of lowering house prices. That would not make sense.
What is required is a Government plan to oversupply the residential housing land market, for sale at half the current prices and restrict the size of homes, rather than have covenants for ever larger homes.
This will boost home building, and mean that first home buyers will choose a new home over an established one, and this will reduce established home prices. So interest rates will have little effect and affordability will not be a limiter.
We are spending too much on homes and banks are getting the biggest benefit, because the proportion of our wages are been received by banks.

The solution to Housing Affordability and reviving the building industry is halving land prices.

The solution is to bring home prices down over the next 5 years, and the way to do that is to massively oversupply the amount of land available to build on at half the price currently offered. This policy would ensure that mortgage stress is a thing of the past and that housing affordability is never an issue for new home buyers.
Source: Mr Mortgage

Housing market slow down will hopefully reverse

The housing market in Australia continues to slow and the 1% cash rate cut, which has effectively given a 0.8% mortgage interest rate reduction has helped homeowners, but is not expected to assist new home sales till the financial turmoil has subsided.
The Housing Industry Association (HIA) survey found new home sales fell 1.3 per cent in August, following a 7.2 per cent decline the previous month. September figures are expected to come in slighly better.
Sales of detached houses fell 2.4 per cent in August, the seventh monthly fall in a row.
Multi-unit sales rose by 5.8 per cent in the month, which was only the second increase in calendar 2008 so far.
HIA chief economist Harley Dale said tight conditions in the rental market will continue because not enough houses are being built.
Mr Dale also said a lack of available housing and high interest rates are hindering first home buyers trying to enter the property market.
"A shortfall of 45,000 dwellings this year alone is showing up in significant financial distress for lower income renters," he said.
"Further interest rate deductions have a vital role to play in complimenting supply boosting policies.
In August, Western Australia weathers the largest fall in homes sales, down 5.6 per cent after after dropping 24.5 per cent in the month before.
Queensland recorded a 4.7 per cent fall in new home sales while South Australia dipped 4.3 per cent lower.
New home sales in NSW rose one per cent while Victoria posted a modest 0.3 per cent gain.
The survey was compiled from a sample of Australia's 100 largest residential builders.
Hopefully we will see a lifting of orders for new homes after Christmas but traditionally sales do fall off before christmas.

Housing affordability collapses to record low

Relentless rises in mortgage interest rates and sky high house prices around Australia have pushed housing affordability to its lowest level on record.
The Commonwealth Bank of Australia - Housing Industry Association (HIA) Quarterly Review of Housing Affordability for the September quarter showed the index falling 2.1 per cent to be 8.3 per cent lower than in the corresponding period in 2006.
The HIA today said housing affordability had reached its lowest level since the series began in 1984.
Established house prices rose by 11.4 per cent during the past year and were a major cause of loan repayment rises for first home buyers.
“It is unacceptable that a typical first home buyer would have to place themselves in mortgage stress to purchase a home,” said Ron Silberberg, Managing Director of HIA.
The HIA said a first-home buyer earning an average household income of $98,000 a year would have to commit 31.7 per cent of their income to buy a home, the highest on record.
Cost burden rises
The official cash rate is 6.5 per cent, and variable home lending rates are set at 8.3 per cent.
Australians have been slapped with nine interest rate rises in the last five years and home loan interest rates sit at a 11-year high after the most recent rise in August.
The steady yet relentless rise in interest rates in Australia over recent years is a prime candidate to explain why housing has become less affordable, according to a recent Macquarie Bank report on housing.
Macquarie expects the Reserve Bank of Australia (RBA) to increase interest rates by a 25 basis points this year or next and possibly by more.
"If growth remains strong and the RBA remains alert to potential inflationary pressures, interest rates could rise by another 75 basis points," say the report authors Brian Redican and Hayden Atkins.
"Should the RBA be compelled to tighten policy to address rising inflationary pressures, housing affordability would deteriorate significantly to the worst levels since in the early 1990s," Macquarie says.
Westpac chief economist Bill Evans said yesterday strong growth and inflation pressures would push the Reserve Bank of Australia to raise interest rates by 50 basis points in coming months.
"Our view is that rates are likely to rise by 0.25 per cent by the end of the year ... further out we expect that even if there is a short term reprieve we are still likely to see the overnight cash rate higher by 0.5 per cent from its current level in the first half of 2008."
Nicki Bourlioufas is the business editor of NEWS.com.au

Aussie John has a plan to fix housing affordability

Aussie Home Loans boss John Symond said yesterday he had presented Prime Minister John Howard with a solution to the problem because years of political buck passing had led to inaction at all levels of government.
Mr Symond's plan would give first-home buyers a tax deduction of up to $4725 a year for five years on annual home loan interest repayments of $15,000. That equates to a $400 monthly saving, reducing loan repayments from $1900 to $1500 on a $300,000 loan.
The maximum benefit would be available for new homes or units worth $200,000 to $500,000.
After getting on top of their mortgage repayments, borrowers would pay back half the benefit over the next five years - a maximum of $200 a month or $2362 a year.
"Housing affordability today, in all my 30 years in the business, is the worst it has ever been for first-home buyers," Mr Symond said yesterday.
"If we sit by and do nothing the crisis just deepens - that's what's happening at the moment."
Mr Symond met Mr Howard in Sydney for an hour on Tuesday to present him with the report and detail how the proposal would work.
Mr Howard yesterday told The Daily Telegraph he was interested in the proposal and would have a thorough look at it before releasing his own policy on housing affordability.
"I haven't made a decision, I'm not saying 'yes' or 'no' but I always look at something that John Symond puts forward," Mr Howard said.
"He's a very public-spirited man, he's contributed a lot and I always take his ideas seriously."
The scheme would cost the Federal Government $505 million per year and would be open only to people buying new dwellings - in an effort to stimulate construction and increase housing supply on city fringes.
Opposition housing spokeswoman Tanya Plibersek said the more that experts contributed to solve housing affordability the better.
"It's a very important issue for many Australians and the Government has been unwilling to propose any solutions of its own," she said.
The plan has been in development for the past four months in conjunction with economic analysts BIS Shrapnel, which yesterday predicted the Reserve Bank of Australia would raise its cash rate from 6.5 per to 7.3 per cent by 2011.
"Substantial interest rate rises in the next 12 months is unlikely but the risk is, if we've got strong construction activity, that they will rise significantly by 2010/11," BIS Shrapnel boss Robert Mellor said.
He estimated the number of Australians aged between 25 and 35 years - the average first home buyer age - would increase by 36,200 over the next five years.
Source: Daily Telegraph

Queensland housing affordability on a downhill slide

Queensland residential real estate developers say there has been a substantial slide in housing affordability across the state in recent years.
The Urban Development Institute of Australia has today released a new national affordability report.
It charts the change in affordability of 70 centres in Australia between 2001 and 2006.
Institute state president Brian Stewart says the change in Queensland mirrors that in other states.
"We've moved from a situation in 2001 where 83 per cent of homes sold that year were affordable to families on a median salary, to a situation in 2006 where they can only purchase 27 per cent of the housing stock in Queensland," he said.
"That's [a] very substantial slide in affordability."

Source: ABC

Labor Leader Switches from Mortagge interat rates to housing affordability

Labor Leader Kevin Rudd says Prime Minister John Howard has remained silent on housing affordability.
Labor is trying to switch the political focus to housing affordability ahead of federal Parliament's return this week and the Reserve Bank's interest rate decision on Wednesday.
Mr Rudd says Mr Howard has remained silent on housing affordability.
Finance Minister Nick Minchin has dismissed suggestions the first home buyers grant should be boosted.
"That will end up just feeding into price," he said.
He says the states should release more land.
With widespread forecasts of an interest rate hike this week, the Liberal Party is launching a pre-emptive strike, targeting Labor state government debt in an online campaign.
But Labor Leader Kevin Rudd says there has been a string of rate rises under the coalition.
"[Prime Minister John] Howard seems to now be saying that if there is a problem with interest rates in Australia, it's because of the states, it's because of anybody else apart from Mr Howard," he said.
WA Premier hits back in blame game
Western Australian Premier Alan Carpenter accused Mr Howard and his ministers of looking to blame anyone but themselves for the nation's problems.
Mr Carpenter was responding to comments by Mr Minchin, who claims state debt levels are putting upward pressure on interest rates.
The Reserve Bank is widely tipped to increase the official rate at its meeting this week.
Mr Carpenter says WA is running a very strong budget surplus and the assertion that state finances may force the Reserve Bank's hand are wrong.
"John Howard told people that he would keep interest rates down and he hasn't, so he's looking for people to blame - he's to blame," he said.Source: ABCHousing affordability plummets: reportPosted 11 minutes ago
The Urban Development Institute of Australia (UDIA) says a new national report proves housing affordability has worsened dramatically in recent years.
The report will be released today and charts the change in affordability of 70 centres in Australia between 2001 and 2006.
It has found that in 2001, 96 per cent of all the centres were considered affordable.
But UDIA national president Grant Dennis says there has been a major shift in affordability since then.
"In 2001, half the population could have purchased 71 per cent of the houses that were on sale in that year across the country," he said.
"If you skip forward to 2006, half the population could have only purchased 29 per cent of those houses."
Mr Dennis says only 39 per cent of centres are now deemed to be affordable.
"What the report clearly demonstrates is that it's not a local or state government issue - it's very clearly a Federal Government issue," he said.
"I think the only way that the issue can be resolved is that there has to be the creation of a ministerial council for housing, urban development, affordable housing - something along those lines.'
Source: ABC

Great Australian Dream becomes unrealistic as real estate and mortgage costs spiral

With housing affordability and mortgage rates now an election issue — and with house prices falling in Sydney's battler electorates and a Labor poll showing high rents are eating into people's incomes in marginal seats — experts warn the problem will get worse. They also say it might be permanent.
They warn that it will create an eastern seaboard pocketed with ghettos that will lock the have-nots out of housing, and spell the end of Australia as an egalitarian society.
Peter Brain, executive director of the National Institute of Economics and Industry Research, said housing problems were the result of loose monetary policies that had extended easy and cheap credit including mortgage loans, home loan grants and cuts in sales tax that had driven up prices, and 30 years of neglect by governments on infrastructure.
"I do not see an easy way out," Dr Brain said. "Building infrastructure is a 10-year program of upgrading rail, public transport and freeways.
"With good planning starting today, and with appropriate government action, it would take 10 years.
"It's going to take billions upon billions upon billions and the idea of giving tax cuts is just so immoral, because what you are doing is condemning an increasing segment of the population to a ghetto existence with not enough time or material resource to access what's their basic right."
The warning comes as the Reserve Bank board meets on Tuesday week to determine whether there will be another interest rate rise. Following new inflation figures last week, the market seems to be now saying it is a lay-down misere.
Trading on the SFE 30 Day Interbank Cash Rate Futures contract on Friday showed the market had assumed a 73 per cent chance of a pre-election interest rate rise next month.
Political parties and experts have come up with their solutions to the problem.
The Howard Government has promised a shake-up of public housing by forcing the states to compete with the private sector for $1 billion of federal funds. Opposition Leader Kevin Rudd's ideas include an Affordable Housing Agreement with states and local governments.
Other ideas include ANZ economist Saul Eslake's call to make interest payments made by first-home buyers tax deductible if they promise to pay capital gains later, and billionaire apartment king Harry Triguboff's suggestion that young people should be allowed to delay compulsory contributions into superannuation to save a deposit.
But specialists say there are no easy solutions.
While a report by economic forecaster BIS Shrapnel last week warned the national rental squeeze will last until at least the end of this decade, they warn the crisis may last longer, perhaps permanently.
KPMG demographer Bernard Salt said the problem was driven by changes in the shape of Australian households, and the fact that Australian cities were now becoming global.
The family unit is now increasingly being overtaken by singles, childless couples and gay people with more money to spend who can force up the prices with their demand for property, he said.
"You can't stop social change and the key driver here is social change," Mr Salt said.
"I can't see any reason why this won't continue step by step, inch by inch, certainly for decades to come."
Mr Salt said this signalled the end of two visions of Australia: as an egalitarian society, and secondly a country where everyone had the right to own their own home. The outcome here is social stratification, at a geographic level.
"If you simply cannot afford to live in Sydney, you move out. If you can't afford to buy in Melbourne, you move out. So then you have families, the poor, even the lower middle class being relegated to cheaper options outside the city."
"The social structure of Australia must change, even the notion that we are an egalitarian society where everyone has equal access to housing. That may well have been the case in the '50s, '60s, '70s and '80s but that may not be case in the 21st century. I can see actually quite significant social division in Australia. We might not think it, but I reckon in 20 years time, we will look back and say this was a pretty good time in history with prosperity, job opportunities."
Source: The Age

Great Australian Dream becomes unrealistic as real estate and mortgage costs spiral

With housing affordability and mortgage rates now an election issue — and with house prices falling in Sydney's battler electorates and a Labor poll showing high rents are eating into people's incomes in marginal seats — experts warn the problem will get worse. They also say it might be permanent.
They warn that it will create an eastern seaboard pocketed with ghettos that will lock the have-nots out of housing, and spell the end of Australia as an egalitarian society.
Peter Brain, executive director of the National Institute of Economics and Industry Research, said housing problems were the result of loose monetary policies that had extended easy and cheap credit including mortgage loans, home loan grants and cuts in sales tax that had driven up prices, and 30 years of neglect by governments on infrastructure.
"I do not see an easy way out," Dr Brain said. "Building infrastructure is a 10-year program of upgrading rail, public transport and freeways.
"With good planning starting today, and with appropriate government action, it would take 10 years.
"It's going to take billions upon billions upon billions and the idea of giving tax cuts is just so immoral, because what you are doing is condemning an increasing segment of the population to a ghetto existence with not enough time or material resource to access what's their basic right."
The warning comes as the Reserve Bank board meets on Tuesday week to determine whether there will be another interest rate rise. Following new inflation figures last week, the market seems to be now saying it is a lay-down misere.
Trading on the SFE 30 Day Interbank Cash Rate Futures contract on Friday showed the market had assumed a 73 per cent chance of a pre-election interest rate rise next month.
Political parties and experts have come up with their solutions to the problem.
The Howard Government has promised a shake-up of public housing by forcing the states to compete with the private sector for $1 billion of federal funds. Opposition Leader Kevin Rudd's ideas include an Affordable Housing Agreement with states and local governments.
Other ideas include ANZ economist Saul Eslake's call to make interest payments made by first-home buyers tax deductible if they promise to pay capital gains later, and billionaire apartment king Harry Triguboff's suggestion that young people should be allowed to delay compulsory contributions into superannuation to save a deposit.
But specialists say there are no easy solutions.
While a report by economic forecaster BIS Shrapnel last week warned the national rental squeeze will last until at least the end of this decade, they warn the crisis may last longer, perhaps permanently.
KPMG demographer Bernard Salt said the problem was driven by changes in the shape of Australian households, and the fact that Australian cities were now becoming global.
The family unit is now increasingly being overtaken by singles, childless couples and gay people with more money to spend who can force up the prices with their demand for property, he said.
"You can't stop social change and the key driver here is social change," Mr Salt said.
"I can't see any reason why this won't continue step by step, inch by inch, certainly for decades to come."
Mr Salt said this signalled the end of two visions of Australia: as an egalitarian society, and secondly a country where everyone had the right to own their own home. The outcome here is social stratification, at a geographic level.
"If you simply cannot afford to live in Sydney, you move out. If you can't afford to buy in Melbourne, you move out. So then you have families, the poor, even the lower middle class being relegated to cheaper options outside the city."
"The social structure of Australia must change, even the notion that we are an egalitarian society where everyone has equal access to housing. That may well have been the case in the '50s, '60s, '70s and '80s but that may not be case in the 21st century. I can see actually quite significant social division in Australia. We might not think it, but I reckon in 20 years time, we will look back and say this was a pretty good time in history with prosperity, job opportunities."
Source: The Age

Australia becoming a 2 tier real estate market as Melbourne's one million dollar median home price suburbs double to seventeen

Melbourne now has seventeen one million-dollar suburbs, more than double the number at the start of the year.
The booming housing market means the likes of Balwyn and Surrey Hills are joining the property elite of Toorak and Brighton as having median price tags of more than $1 million.
Real Estate Institute of Victoria figures show that sales in the three months to the end of June produced nine more million-dollar suburbs, compared with eight in the first quarter of this year.
REIV chief Enzo Raimondo said the middle and the top end of the Melbourne homes market were going strong.
"I don't remember the $500,000-and-up market being this strong," Mr Raimondo said.
While housing affordability continues to worsen, especially for those trying to enter the market, it seems there is plenty of money to spend on property in eastern and beach suburbs of Melbourne.
The median value of Hampton homes jumped 23.8 per cent to put it in the $1 million bracket in the June quarter.
A renovated, four-bedroom clinker brick home in Littlewood St sold on Saturday for $1.855 million, stunning agent Stephen Wigley, of Hodges in Sandringham.
With a starting price of $1.35 million, Mr Wigley expected to secure a sale close to the reserve of $1.5 million.
"But a gentleman... started the bidding at $1.5 million," he said.
The Hampton area had been undervalued for some time and the quality of homes and its location would ensure more high prices would continue, Mr Wigley said.
Kay and Burton managing director Gerald Delaney said it had been the busiest winter for sales.
In the past year, the estate agent had sold properties worth at least $1 million in 23 suburbs, Mr Delaney said.
On Saturday, Kay and Burton sold a four-bedroom townhouse in Glen Eira Rd, Elsternwick, for $1.195 million.Source: Herald Sun

Housing affordability, scarcity and mortgage interest rates to get worse

Housing affordability will get worse before it gets any better, with mortgage interest rates more likely to rise over the next year or so, the federal opposition's housing summit was told today.
Financial markets are already betting the Reserve Bank of Australia will need to raise interest rates next month to kerb renewed signs of price pressures.
Any rise will compound already stretched household budgets after last year's three interest rate rises.
More than 100 experts in finance, economy and politics have joined federal and state Labor politicians at Parliament House in Canberra to find solutions to the housing affordability crisis.
ANZ Bank chief economist Saul Eslake told the conference that high interest rates were the cause of the last housing crisis in the late 1980s, which was later countered by low interest rates.

But this time the problem was also rising house prices, which would be “a problem for sometime to come,'' Mr Eslake said.
Lower mortgage rates would help, and authorities should aim to put downward pressure on interest rates, and “saving more from the resources boom than the present government,'' he said.
Young are the victims
The conference was told that the main victims in the current housing crisis are under the age of 35 that typically borrowed too much during the 2000-2004 housing boom.
This group is now suffering from rising interest rates, and in some cases are having to take on a second job to meet repayments.
NSW Planning Minister Frank Sartor said the cost of building houses was accelerating, and needed to be countered with a quicker turnaround in housing permits.
But he disagreed with the federal government's solution to the housing problem that it was just a question of releasing more land for housing and cutting state housing related taxes.
Mr Sartor said cutting taxes would just lift house prices by the amount of the tax cut. This is a similar argument the government uses for not raising the $7,000 First Time Home Owners Grant.
But in any case, the conference was told that the value of the grant has been hugely diminished due to the rise in house prices.
The Government is undertaking a national land audit to find suitable areas to build new housing, and continues to press states and territories to cut land taxes as part of the GST agreement.
Infrastructure is key
Australian Local Government Association president Paul Bell says it is not just a question of building new houses, but building them where people wanted to live, with proper services and infrastructure.
”Housing supply has to be where the housing demand is,'' he said.
Housing Industry Association managing director Ron Silberberg says states will suffer a $50 billion shortfall over the next 10 years as they try and keep up with new infrastructure needs.
He said there should be a residential infrastructure fund, similar to Auslink and the government's new roads initiative, to allow for a synchronised roll-out of infrastructure with new home building.
Another problem for new home buyers is they are competing with investors who can gain tax benefits from investing in property, and are driving up house prices.
But Mr Eslake said saving initiatives to help fund the deposit for a new home, such as a superannuation-type scheme, should be aimed at buying a new property rather than inflating the price of an existing home.

Housing supply research and data collection proposed

A housing supply research council would be established if Labor wins power in the upcoming Federal election, a summit in Canberra was told today.
"The whole objective there is simply to provide better data for us all because we think that is the best way which you can shape public policy into the future," Labor Leader Kevin Rudd told the ALP-organised meeting.
The council would include representatives from state and territory governments, local government, Treasury, Reserve Bank, the housing property and finance sectors, welfare and community housing sector, as well as relevant research institutes.
"We want the best brains around to get the total data picture right," Mr Rudd said.
He said he did not want the summit to become an opportunity to blame the Government for problems in housing affordability.
"We would like to try and do what we can, through this summit today, to get the housing affordability question right," he said.
Property experts, economists, academics and business leaders joined state housing ministers at the conference inside parliament house today.
"Most of us accept the proposition that we do have a housing affordability crisis in the country," Mr Rudd said.
Mr Rudd said those attending the summit had to consider both demand and supply factors that were affecting housing affordability.
Supply issues included the impact of taxes, charges and levies.
Other factors included local government infrastructure for new housing developments, streamlining development approval processes, attracting investors to the affordable housing sector, and dealing with other cost pressures such as the skills shortage.
"On the demand side, of course interest rates are the topic of the day," Mr Rudd said.
The summit will also consider the best way to help first-home buyers enter the market, including a proposal for a deposit scheme.
Mr Rudd said more than one million households were in housing stress through rent and mortgages.
The number of first-home buyers as a proportion of all property purchasers had fallen from 22 per cent in 1996 to about 17 per cent today.
"All these indicators ... point to the fact that we have an emerging housing affordability crisis," Mr Rudd said.
The crisis was exacerbated by the 187,000 people on public housing waiting lists, he said.
Acting NSW Housing Minister Linda Burney she said issues like negative gearing needed to be considered but there were other more pressing issues.
"The more important thing for us today is to make it very clear that the way in which state and commonwealth relations have operated over the past 10 or 11 years is unsatisfactory," she said.
The Victorian and Northern Territory ministers agreed negative gearing should be discussed at the meeting.
"There are a number of proposals that have been floated around tax treatment, both negative gearing and some incentives for superannuation funds to get involved," Victorian Housing Minister Richard Wynne said.
"Those options should be considered."
Source: AAP

Home construction surges 8 percent in Victoria

Home construction activity in Victoria has surged seven per cent in 2006-07, figures show.
Building permit activity in the financial year to June 30 hit a record $16.7 billion, up from $15.6 billion in 2005-06, Building Commission data has revealed.
Victorian Planning Minister Justin Madden said the figures reflected the state's booming growth. "Given our growing population, it is reassuring news that we will have a strong supply of new homes to ensure Victoria continues to have more affordable housing than the national average,'' Mr Madden said.
Building permit activity in metropolitan Melbourne was up 9.4 per cent, while outer Melbourne rose five per cent and regional Victoria remained solid.
In Melbourne, almost 40 per cent of activity was recorded in the inner suburbs while outer Melbourne comprised 36.8 per cent and regional Victoria, 23.4 per cent.
Statewide, permits for home construction jumped 7.9 per cent in the last financial year, while permits to build apartments fell 12.8 per cent.
Commercial permit activity rose 13.1 per cent, retail increased by 9.1 per cent and industrial permit activity surged 7.9 per cent.
There were 97 permits issued where building work was valued at more than $10 million, 10 of which were in regional Victoria. Share this article

Has the Reserve Bank and the Liberal Government conspired to caused high rents make families homeless?

With the RBA delivering 6 rate increases, it has to take part of the blame for the current housing shortage, especially rental property, which became unattractive with the cost of financing due to these mortgage rate increases on top of GST costs. As a result Australian's that have missed the prosperity boom are facing the prospect of homelessness, says the St Vincent de Paul Society.
A report by the society says that over the past five years there has been a 30 per cent increase in the number of families with children needing assistance from homelessness services across Australia.
It says the pressure on the services "has never been greater'', mainly due to the desperate state of the private rental market.
About half of the families seeking help had rented their homes from private landlords, even though private renters make up only 23 per cent of Australian households.
The report says the focus of housing affordability has too long been on ownership, while the plight of low-income renters has been ignored.
"It's time proper attention was paid to the private rental market and decisive action was taken to improve access to affordable housing for low-income private renters living under sometimes crushing financial pressure,'' the report says.
It also says that half of all low income households in the private rental market are in housing stress, meaning they pay more than 30 per cent of their income in rent, and a third of those are in housing crisis, meaning they pay more than 50 per cent of their income in rent.
St Vinnies is calling for a direct $1.33 billion investment in low-income housing by the federal government to address the current crisis.
"We believe that the answer lies in switching the thrust of government policy to supply-side measures, namely, direct investment to increase the supply of the very best form of housing for low-income families - public and social housing,'' the report says.
St Vinnies also wants the issue to be at the top of the agenda at the next Council of Australian Governments (COAG) meeting.
The report says the rental crisis is having a devastating impact on children.
"Most of the children in homeless assistance services are under 12 years of age - a crucial period of their development - and homelessness has a serious impact on their health, education and well-being, often causing high rates of anxiety, emotional and behavioural problems and mental illness,'' the report says. Source: AAP

Housing affordability gets political boost

Australian Labor Opposition Leader Kevin Rudd says he will hold a national housing affordability summit later this month to look at ways to ease the burden on families.

Releasing a paper in Brisbane entitled New Directions for Affordable Housing, Mr Rudd said representatives from the finance and property development industries and state governments would be invited to the summit in Canberra to work on solutions to the growing crisis.

Mr Rudd said land release strategies, urban infill, high government infrastructure charges and skills shortages in the building sector would be examined.

``Once we've had this national summit on housing affordability, we then want to work through the individual responses from the finance sector, from the housing sector and others, to then define and shape exactly the proposals we'll take to the next election,'' Mr Rudd said.

Mr Rudd said one new initiative raised in Labor's paper was allowing for new home deposit savings vehicles, which allowed higher returns and tax advantages to ``supercharge'' the savings capacity of young Australians.

Contributions would be made from pre-tax dollars and earnings could be taxed in the same way as super nest eggs with the money only able to be withdrawn to buy a first home.

``Our national government has to show leadership to find better ways of making it easier for working families to save for a deposit on their first home, and to deal with the overall problem of affordability,'' Mr Rudd said.

Source: Courier Mail

Housing affordability puts pressure on low income earners

The Howard Government's Budget cash splurge had failed to address key issues facing low income earners such as housing affordability, advocacy groups claimed yesterday.
With new figures released yesterday showing the Australian house price index rose 1.1 per cent in the March quarter, the Australian Council of Social Services said the Federal Government's priorities were wrong.
ACOSS executive director Andrew Johnson said the Government should have funded a range of initiatives to tackle the issue, rather than focussing on tax cuts.
"Rather than cutting taxes, we were looking for the Government to invest more in making housing more affordable,'' Mr Johnson said.
The Australian Bureau of Statistics showed that in the March quarter, house prices rose in every capital city except for Sydney.
In Brisbane, house prices rose by 2.9 per cent.
The Brotherhood of St Laurence claimed that the climate change measures announced in the Budget did nothing for low income earners, the group executive director Tony Nicholson said were the most vulnerable to the impact.
"The solar rebate will only assist homeowners who can pay $14,000 or more upfront for solar panels, making them eligible for the $8000 rebate,'' Mr Nicholson said.
"Renters and home owners on low incomes are left out.''
Source: Courier Mail

Mortgage home loans to become a lifelong commitment

Housing affordability is at a record low so mortgage lenders are devising new loan products to bridge the gap for first-time home buyers eager to get a start.
Yesterday Savings & Loan Credit Union started to offer 40 year home loans to customers, taking us one step closer to Japan's multi-generation property loans.
And the appearance of shared equity loans such as that offered by Adelaide Bank/Rismark is another attempt to bridge the affordability gap for potential home buyers at a time when rents are also soaring.
Sceptics claim that the housing market will quickly absorb any affordability short cuts, much as the first home owners grant quickly resulted in prices inflating by a similar amount.
The first independent analysis of shared equity loans disagrees with this idea.
Financial researcher Cannex found that shared equity products are unlikely to have any effect on property prices unless they become very widespread.
Even then, the effects are likely to be modest "because by using this form of loan a borrower with affordability issues has quite different needs from a property upgrader who can suddenly afford one more bedroom.''
The shared equity loan lowers the bar for home ownership by funding 20 per cent of the house with an interest free equity finance mortgage (EFM).
A conventional home loan and deposit covers the remaining 80 per cent of the house value.
The catch is that the issuer of the EFM gets to keep up to 40 per cent of the capital growth on the house.
Surprisingly, Cannex found this sort of a deal can work in the home owner's favour, particularly in times of low to moderate house price growth.
The first saving is in mortgage insurance, which might otherwise have been required if a very large proportion of the property price was being borrowed.
Using historic prices, Cannex found that buyers who used a shared equity loan would have been ahead in the muddling main markets of Sydney, Melbourne and Brisbane but way behind in the faster growing markets like Perth and Darwin.
So the trick is to only used shared equity in markets which are unlikely to experience sharp price growth.
Savings & Loans chief Greg Connor said the new 40-year loans came after requests from members who could not break into the property market.
He said they would reduce the minimum payment on a $250,000 loan by as much as $95.21 a month.
"We see extended terms as a stepping stone for most borrowers who can move to a standard length mortgage after becoming established,'' said Mr Connor.
Of course the price of a 40-year loan term is that it takes a lot longer to start making a dent in the loan principal and you pay interest for a lot longer.
Source: The Herald Sun