Big smoke, even bigger prices
RESIDENTIAL
In the old 'city or the bush' argument, Australians are voting with their feet, Anthony Klan reports
18mar 200606
AUSTRALIA'S love affair with big cities will keep much of the country's housing "unaffordable", say recent studies.
Despite an easing of housing prices, the amount of family income paid into the home loan grew in most states in the last quarter of 2005, according to the Real Estate Institute of Australia's Home Loan Affordability Report released earlier this month.
NSW is the least affordable and only Victoria and Tasmania showed some improvement in the period.
According to a December report by the Reserve Bank of Australia, increasing urbanisation was the key issue driving Australia's lack of housing affordability.
Owner occupiers in Australia's capital cities hold 62.6 per cent of their total assets in their home.
This falls to 58.3 per cent for other major cities and 51.9 per cent for all other areas.
Despite nostalga about wide open plains and the great Aussie outback, Australians love to live in big cities.
The two biggest US cities, New York and Los Angeles, house 9.9percent of the US population.
By contrast, Sydney and Melbourne are home to 36.4 per cent of Australians. If you add Brisbane and Perth, then a massive 51 per cent of people live in our four biggest cities.
In comparison only 11.5 per cent of the US population lives in the country's four biggest cities.
Demographer and partner at accounting firm KPMG, Bernard Salt, says Australia's four biggest cities are expected to increase their share of the population over the next 20 years.
"So, too, will places such as the Gold Coast and selected regional areas on the eastern seaboard and the southwest cape," Salt says, citing downshifting baby boomers seeking seachange and treechange lifestyles. "The areas that will lose market share over the next 20 years are the weaker capital cities and the bush."
According to the RBA study, the further a city sprawls from its central business district the more expensive its housing becomes as people pay to avoid time and travel costs.
Last November the OECD found Australian house prices were the most overvalued in the western world, with prices 52 per cent higher than justified by rent levels. Australians spend the equivalent of 6.2 years of gross annual household income to buy the average house while people in the US spend only 4.6 times annual income.
Researcher Demographia says Sydney houses are less affordable than houses in both New York and London, when compared to local wages.
The issue of affordability is likely to grab the spotlight next month
when Treasurer Peter Costello's international benchmark study into Australian
taxation is handed to the Government.
One of the study's main issues, which critics say underpins Australia's
comparatively high housing costs, is property tax, including our favourable
approach to negative gearing and capital gains tax. Both are considered
an anomaly by international standards.
In addition, housing lobby groups such as the Housing Industry Association
and the Real Estate Institute of Australia argue the affordability problem
is due to inadequate land release programs by state governments. There
are fewer new house and land packages, creating shortages and forcing
up prices of existing housing stock.
Surging construction costs have compounded housing unaffordability in
recent years. But it is the cost of land, and not construction costs,
that has caused declining affordability over the long run, according to
the Housing Institute of Australia.
HIA senior economist Simon Tennent says the price of building a 135sqm
house has grown at sightly below the rate of inflation since 1972. During
the same period, the price of a standardised block of land has increased
at eight times inflation.
Housing groups have placed pressure on state governments to release more
land on the basis that this will improve housing affordability.
In response to criticisms over land supply, the NSW Government says
substantial tracts of undeveloped land have been made available to
developers since the end of the property boom and land supply is now
demand driven. There is land available for development and the thousands
of unsold lots across the country are due to the soft residential market,
it says.