After dipping down, property prices now appear to have stabilised and, along with rising mortgage rates, cost-of-living pressures and a surge in migration, housing affordability has again become a key issue. Nowhere more so than Sydney, continually recognised as one of the most unaffordable cities in the world.
Housing affordability is not a recent issue, from the beginning of the twentieth century, up until the end of 1986, roughly six months of annual personal income was the benchmark for a 10% housing deposit. This figure is currently around 16 months. So, despite a decline in property prices, entering the Sydney housing market has, through time, become increasingly onerous.
Conventional housing affordability measures, which include the impact of mortgage rates, convey a similar message; a Sydney housing market increasingly out of the reach of many.
Clearly, given the amount of time required to save for a deposit, children are likely to live with their parents for longer, thereby delaying the time parents can transition to downsizing.
With housing affordability increasingly out of the reach of a single person, home ownership more and more becomes the domain of couples. Whilst two incomes help in alleviating the strain of meeting mortgage payments, the need for both parties to work also means fertility rates are likely to decline further, thereby reducing the family size, while the age at which couples start a family moves further into the future.
Widespread decentralised employment hubs and effective infrastructure options, such as an improved rail network, could reduce commuting times significantly. The current option is one of road tolls and traffic congestion. While working from home has lessened the need for proximity to the office, commuting times, parking and other commuting costs, increase for pressure to move closer to the city centre, something which can only intensify in the years ahead.
With workers magnetised towards living in the city, and the necessity to have at least two incomes, firstly enter the housing market and, secondly to make mortgage repayments, there will be a number of consequences.
The most obvious and significant is the demand for city centric accommodation will continue to increase, leading to both greater housing density, as well as upwards pressure on both property prices and rents. It follows, housing affordability will deteriorate further.
The increase in housing demand, in conjunction with its rising cost and smaller household sizes, is likely to result in a bias towards, less expensive, apartment living. With greater demand for city and surrounding suburbs accommodation, the attractiveness of boosting supply by converting lower grade vacant office properties to apartments will only increase.
Similarly, the ever-increasing strains on household budgets from housing will also improve the attractiveness of multi-family accommodation while “build to rent” will become a significant market player, particularly so if the government does not increase its involvement, either directly or indirectly, in the supply of social housing.
While the family size is likely to be smaller, the necessity of having at least two income earners will require the development of more childcare centres and schools in more centralised locations. The move to towards apartment living will also ensure an ever-growing demand for self-storage units.
The response of successive governments to deteriorating affordability is to provide financial incentives to first home buyers. All this serves to do, particularly since supply is slow to respond to changes in demand, is boost the price of property being sold to first home buyers, leading to an across-the-board increase in property prices and a further deterioration in housing affordability. Even so, the same failed policy, in their various guises, are persisted with.
Suggested short term options such as the return of the National Rental Affordability Scheme, changes to foreign investment surcharges or the banning of short-term letting platforms, such as Airbnb, are unlikely to materially increase dwelling supply enough to reduce rents. Population growth, underpinned by returning international students, in conjunction with ongoing issues in construction industry (collapses and increased costs) will keep housing demand ahead of supply for some time to come.
Undoubtedly increasing housing supply, as quickly as possible, either by changes to the planning system or housing construction, will help alleviate price pressures but, given the current transport infrastructure, doing so in far-reaching suburbs will simply serve to motivate home owners to locate closer and closer to the city, leading to a further structural deterioration in housing affordability.
Rob Ellis, Director of the Data App. Mob: 0417 195 352 or email: email@example.com or
Damian Stone, Principal and Chief Problem Solver of Y Research. M: 0433 525 414 or email: firstname.lastname@example.org
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