“A
ffordable housing” and the
“housing price bubble” are
dominating conversation
about the property
market. Ironically, the
much debated housing price bubble popping would
certainly sort the affordable housing issue, as a
collapse in prices is a very effective way to make
housing more affordable. As far as I can tell from
following the debate, what we really seem to want
is for housing prices to remain strong for those who
own property but to fall for those, in particular
young first-home buyers, who are yet to buy.
Clearly this is not going to happen. Prices will
either broadly rise or broadly fall, so large numbers
of people will be unhappy regardless. Our
politicianshatepeoplebeingunhappy,sotheir
preference is to make housing more affordable for
those who don’t own a property, while prices grow
for the millions of current property owners. That
resultwouldindeedbeamiracleandagreatshock
to pragmatic people like me.
I think we are best to separate these two hot prop-
erty topics into two parts. First, the housing price
bubble. Yes, property in particular in our major cities
on the east coast is really expensive. “Expensive”
canbelookedatintwoways.Youcantake,say,a
two-bedroom apartment in a particular location in
global cities and look at the price per square metre
and make a comparison. On this basis our most
expensive city, Sydney, is right up there. Sure, it isIN YOUR INTERESTPaul Clitheroe
Prices will
rise or fall,
so many people
will be unhappy
regardless
cheaper than New York, London or Shanghai but
more expensive than most. Or you could look at the
price of property as a multiple of the average wage.
Sydney remains expensive but on this basis very
cheap compared with Shanghai.
Then you can get into a debate that would extend
for a lifetime by comparing unemployment, job
security, savings ratios, consumer confidence,
interest rates and so on. The tax system plays a
critical role and it is not just our negative gearing
system. We have no death duties in Australia, so
as people who own property die, that wealth is
transferred, untaxed, to the next generation. Equally
you would have to look at family formation, as
smaller numbers of children see property owners
passing untaxed assets to a smaller number of kids.
The security and stability of any country will see a
major impact on property values as globally people
seek out safe havens.
One thing is for sure. When it comes to property
it is all about supply and demand. So in our compar-
ison model with other countries, population growth
and the availability of appropriate land for housing
is critical. Various government departments and
reports such as the intergenerational report, pub-
lished every five years, look at population size. Over
the centuries we have not been too good at these –
we tend to undershoot. For example, our population
hit 24 million in February 2017; predictions in the
early 1900s had this happening in 2035. Today the
predictions are for a population of some 40 millionDID YOU
KNOW?-^ The proportion of
family income required
to meet loan repay-
ments Australia-wide
is 30.4%, based on a
median weekly family
income of $1681, ac-
cording to the Decem-
ber quarter edition of
the Adelaide Bank/
Real Estate Institute
of Australia Housing
Affordability Report.