Treasury's submission to Aussie home ownership
In its submission to the House of Representatives Standing Committee on Economics Inquiry into Home Ownership in Australia, the Department of the Treasury reminds that state and territory governments have the primarily responsibility in housing supply. Removing regulatory impediments, land use and housing infrastructure policies is what improving housing supply is about.
"Reform addressing states and territories’ planning and land supply policies is not a new area of work. The Productivity Commission Inquiry into First Home Ownership in 2004 noted the need for state and territory governments to have appropriate land release strategies in place and to improve the efficiency and effectiveness of planning and development policies.
"Reform in this area has also been attempted previously. In July 2012, the Council of Australian Governments committed to the recommendations of the Housing Supply and Affordability Report (HSAR), which included improving planning, development and rezoning processes, and the release of land."
The demand for housing has increased along with the population. On the other hand, dwellings completion have not followed the population growth and remained constant over the past 15 years. The insufficient housing supply appears to have driven the increase in the dwelling prices.
"Housing is the largest asset class owned by Australian households, and is therefore a key driver of saving decisions.
"Home ownership rates are relatively uniform across Australia with the exception of the Northern Territory. South Australia recorded the highest home ownership rate in Australia at 72.3%, with Northern Territory recording the lowest rate at 53.2%.
"Home ownership rates in Australia are higher than comparable countries like the United States, United Kingdom, and New Zealand and a little below Canada. Rates of home ownership in some countries, such as Germany, are considerably lower."
"Dwelling investment accounts for around 5.5% of GDP in Australia. However, it has been highly cyclical in the past and has had significant impacts on GDP growth.
"Between 2002 and 2012 there were two periods of strong increases in dwelling prices with price growth peaking in late 2007 and early 2010, but the supply response was muted compared with past cycles.
"The number of building approvals for dwellings rose 17.6 per cent through the year to May 2015, implying a large stock of work yet to be completed. Reflecting the pipeline of work pending, the 2015-16 Budget forecasts dwelling investment to grow by 6 1⁄2% in 2015-16 and 41⁄2% in 2016-17. Dwelling construction is expected to directly contribute 0.3 percentage points to growth in both 2014-15 and 2015-16.
"While construction is growing more rapidly in New South Wales than Victoria, Victorian construction is starting from a higher level, so the supply of new dwellings has been higher in that state over the past decade
"Data suggest that there is still significant scope to increase the total supply of housing. National rental vacancy rates have been rising slowly since 2007 but remain low at 2.7% in the March quarter of 2015, well below the previous peak of 4.7% in 2002
"Despite this, rental yields are low by historical standards. Net rental yields for three bedroom homes have fluctuated between 3.2% and 3.5% since late 2009 and are currently 3.3%. Low rental yields are a consequence of house price growth, which has outstripped growth in rents for most of the past two decades.
"Rental yield is the average across Australian capital cities and is calculated by dividing net annual rental income by the median price. It does not take capital growth into account.
"National dwelling prices rose by 9.8% over the year to June 2015, a little below the peak reached in the middle of 2014.
"Price growth has been concentrated in Sydney and to a lesser extent, Melbourne. Dwelling prices in Sydney grew 16.2% in the year to June 2015, and by 10.2% in Melbourne."
"In Sydney, price growth in the year to May 2015 varies between 9.3% in the Eastern Suburbs and 20.7% in Outer South Western Sydney. Of the 14 subdivisions that cover Sydney, price growth is stable or moderating in 10.
"Melbourne price growth in the year to May 2015 varies between -0.2 per cent in Melton-Wyndham and 17.7% in Eastern Middle Melbourne, but 11 of the 16 subdivisions are experiencing growth between 3.3% and 6.8%. The majority of subdivisions in Melbourne have had steady price growth at current levels for the past year."
Distribution of Home Ownership
"The home ownership rate among households headed by a person aged 25 to 34 has fallen from 52.2% in 1995-96 to 42.0% in 2011-12, while for households led by a person aged 35 to 44, the rate has fallen from 72.9% to 62.1% over the same period. Ownership rates have been steadier for older age cohorts.
"The proportion of loans being approved to first home buyers' is currently around 15%.This is slightly below the average over the past five years of 17.0%, and below the average of 21.6% in the second half of the 1990s.
"The number of Australians buying a home for the first time has averaged around 4 per 1,000 people over the past five years, compared with around 5 per 1,000 people in the second half of the 1990s.
"The two key factors influencing the purchase of a first home are savings for a deposit and having sufficient income to service a mortgage.
"Since 2000, investors have generally accounted for between 30 and 40% of all housing finance approvals. However, during periods of strong price growth, investors tend to represent a larger proportion of financing, particularly in New South Wales."
Long-term macroeconomic drivers
"Over the past 20 years annual net overseas migration has contributed between 0.3% and 1.5% to annual population growth. Net overseas migration grew strongly between 2006 and 2008 with the contribution of net arrivals peaking at 1.5% in 2008.
"Net migration contributed 0.8% to annual population growth in the year to the December quarter 2014. Annual population growth rose above 1.3% for the first time since 1991 in 2006 and has remained above this level.
"During the 1980s and 1990s migration flowed out of New South Wales and Victoria and into Queensland. The outflow from Victoria reversed in the mid-1990s, while the outflow from New South Wales intensified around 2001. Net interstate migration to Queensland has fallen from around 37,000 in 2002 to 6,000 in the most recent year (up to the December quarter 2014).
"Net interstate migration to South Australia has been negative for most of the past 30 years. Western Australia has generally experienced inward interstate migration, although this flow fell sharply over the past two years and has been negative over the 3 quarters to December 2014, reflecting developments in the resources sector.
"Overall, the rate of interstate migration in Australia has typically had a smaller influence on state populations than either natural increase or overseas migration.
"Since 2001 the average size of households has remained steady at 2.6 people indicating a slowdown in the rate of household formation.
"The long-term supply of dwellings in Australia is determined by the availability of land and redevelopment opportunities and the underlying capacity of the construction sector.
"Data on the availability of land suggest that residential land releases have been declining over the past 15 years. This is consistent with a greater focus on the redevelopment of land closer to city centres, but also highlights the lack of growth centres outside of capital cities, with land release declining faster in regional areas."
