Home Ownership

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Compass Housing Services, a community-housing group currently managing 3,500 properties housing 5,700 tenants in NSW, as well as another 850 properties in Queensland, stated in its submission to the House of Representatives Standing Committee on Economics Inquiry into Home Ownership in Australia, that home ownership will soon only be available for those in the top tax bracket. 
"In the case of Sydney, where already stretched prices have increased by 33% in the last three years alone and the median house prices is fast approaching the million dollar mark, it would be fair to say we are already there. 
"The percentage of Australians aged 25-34 who own their homes (either outright or with a mortgage) has dropped by 17% over the last 25 years. The 35-44 year age bracket has also seen a big fall with just 62% now counting themselves as home owners compared with more than 75% in the early 1980s."
Another change has been the amount of debt households are taking on in order to buy a property. 
"Between 1987 and 2013, Australia’s household debt per person has increased from under $20,000 per person to almost $80,000 per person with more than three quarters of that debt tied up in the domestic property market, an increase of 50% since 1990. 
"A lack of affordability for first home buyers can place additional strain on the rental market which in turn can increase demand on social housing or homelessness services. 
"To plug the affordability gap between social housing and the private rental market, most states offer alternative, less intensive forms of housing assistance. In most states, low-income households struggling to pull together the bond for a rental property can access interest free loans from the state government. 
"It is estimated around 20% of all households in Queensland’s rental market rely one of these loans in order to secure their tenancy."
Tax Policy Impact
"The Australian Council of Social Service has reported more than half of geared investors are in the top 10% of the income scale and 30% earn more than half a million dollars a year. 
"Similarly, the Australia Institute has reported that 55% of the benefits from capital gains tax (CGT) discounts and negative gearing flow to the top 10% of income earners while households in the lower half of the income range receive only about 20 per cent of negative gearing benefits and less than 8% of capital gains benefits.
"If this data is correct, it would seem that while advantageous to certain sections of the community, the current tax treatments have played a major role in concentrating home ownership in the hands of fewer Australians."
Compass Housing Services believes that the lack of affordability is partially a consequence of "well- intentioned tax concessions" and the current tax policies favour investors over first home buyers.
"Data from the Australian Bureau of Statistics indicates less than 10 per cent of home loans to investors are used to construct new housing with the overwhelming majority simply used to purchase established dwellings. 
"Compass urges that a due and proper independent assessment of the current tax system that enables access to benefits to more younger Australians, while boosting supply of new dwellings should be conducted and the government respond accordingly. 
"Compass recommends the reintroduction of a revamped National Rental Affordability Scheme with more stringent controls on eligibility to ensure the benefits flow to those for whom they’re intended. 
"Compass recommends the committee consider legislative options to encourage greater superannuation industry investment in new residential property or affordable housing schemes. 
Compass Housing Services named three key benefits of greater outsourcing of social housing provision.
Additional human services and tenant development opportunities 
"Would allow community housing providers like Compass to help the movement of some social housing tenants into the private rental sector and home ownership, thereby releasing old social housing stock for redevelopment or sale with monies raised reinvested in the provision of greater numbers of new and more appropriate dwellings."
Stock transfer 
"Secondly, following UK experience, we know that significant stock transfer creates the opportunity for organisations to become major agents in housing supply. As capacity and confidence develops, a wider range of human and support services emerge to support tenants. 
"Additionally, favourable borrowing conditions for social housing, not-for-profit organisations encourage entry into direct building of social housing as well as the supply of local infrastructure including schools and medical facilities." 
Innovative funding arrangements for community-housing providers 
"Finally, community-housing providers are able to enter innovative funding arrangements with private sector partners, often through the creation of special purpose vehicles (SPVs). 
"SPVs can bring important capital sources to the social housing market and involve major home building agents within a framework in which the community provider manages tenancies and provides human services and tenant support systems."
 
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jchancellor-FAypfDUnLy

Home ownership may be limited to the top tax bracket: Compass Housing Services

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GUEST OBSERVER
Treasurer Scott Morrison has outlined his vision for increasing home ownership at a speech to the Urban Development Institute of Australia.
The Treasurer acknowledged it’s hard for first home buyers to get into the Australian housing market and suggested a number of barriers to increasing housing supply. We asked an expert panel to analyse these and suggest what other ideas they might have for easing the problem.
What the states need to do
Nicole Gurran, Professor of Urban and Regional Planning, University of Sydney
The Treasurer’s comments about the planning system are out of date. A decade of state reforms to alleviate supply constraints have enabled the inner city apartment boom, and generated a steady supply of outer suburban land to build on. 
With housing construction at record numbers, state planning systems are clearly able to respond to rising market demand. Putting aside questions about the location and quality of new housing, increased construction hasn’t delivered cheaper homes, nor does the Treasurer seem to want that. In fact, he spends much of his speech cautioning about risks to the housing market from the removal of negative gearing or from an over-supply of apartments.
With our housing system so dependent on the private sector, the real question is how to keep construction running when the market cools. If Treasurer Morrison is truly concerned about affordability he should also be asking how to secure affordable homes as part of new development, without lowering values across the established market.
Providing incentives for developers to provide affordable homes is an obvious solution and one that the property industry itself has been lobbying for. This entails government support to drive investment towards affordable rental housing and to enable a new range of housing products such as shared equity and low cost home ownership.
At present, only around 2 percent of new homes are delivered by affordable and non profit housing providers. A larger affordable housing sector, assisted by government to draw on innovative sources of institutional finance, would be able to sustain new housing construction, irrespective of the market cycle.
The commonwealth should negotiate with states so that infrastructure investment and land release is closely linked to mandatory targets for including affordable housing. This way opportunities for affordable homes can be secured before land values rise. This will help stabilise housing production while boosting the supply of well-located and affordable homes. 
Cutting the cost of infrastructure to go with housing
Robin Goodman, Deputy Dean of Sustainability at the School of Global, Urban and Social Studies and Joe Hurley, Senior Lecturer, Sustainability and Urban Planning, RMIT
The planning, cost and provision of adequate infrastructure may add to the cost of housing. But the real cost of housing must include the ongoing costs of living. These will be greatly increased if there is little or no public transport, schools, services and jobs in anywhere near close proximity. 
The growing difference between expensive and unaffordable locations and prices on the urban fringe, shows people buying houses value infrastructure and services and the access to opportunities these provide. Morrison’s view of the costs of infrastructure as impeding housing supply, suggests we should spend less on infrastructure. Were we to do this we would be significantly adding to this growing inequality which will have implications for both liveability and prosperity. 
The way infrastructure is funded at the moment is partially through contributions from property developers and some of this will be passed on to the home buyer, increasing purchase costs. Governments fund some infrastructure directly however the current federal government has been more prepared to do this with freeways and roads, but less so with public transport and facilities. Housing affordability is a broader problem which involves the costs of both buying and renting and the ongoing costs of living within a house and a city. 
Rather than reducing the funding of infrastructure, or absolving developers of making some contribution towards it, the real issue is accurately targeting investment to where it most needed. The most urgent need for new outer urban areas is for adequate public transport to begin to give all residents more equal access to jobs and opportunities. 
Releasing more land and relaxing regulations
Steven Rowley, Associate Professor of Economics and Property, Curtin University Business School
The core driver of new housing supply is profit and that profit is a result of demand (the revenue from sales) and cost (the physical construction, land, finance, taxes). There are many barriers to this profit and hence new housing supply. A solution often put forward, and we heard again from the treasurer, is removing land use planning regulations that unnecessarily impede housing supply. 
Sounds sensible, but it’s no good just randomly releasing land and expecting development to occur. Policy makers must understand that more land does not necessarily lead to more development. For example, why would developers flood a local market with new product of a similar type; it will just reduce prices and hence profitability.
Infill development, where development occurs within existing built up areas, was barely mentioned in the speech. States are grappling with the challenges of increasing proportions of new dwellings on infill sites in an attempt to tackle urban sprawl. Large scale, coordinated infill projects can deliver open space and amenity, adding quality to our existing urban areas. This scale will be difficult to achieve without public sector intervention.
Challenges abound in the infill space and include community opposition, upgrades to existing infrastructure and allowing for housing diversity (attached houses and low rise apartments, not just high density towers). If the government wants to make a difference to the supply of dwellings, in places where many people want to live, they need to facilitate development at scale and deliver significant affordable housing contributions on government-owned land. This will not be popular with local communities and local council members, but is essential in delivering the diverse housing essential in our cities. 
Planning where to put more houses
John Daley, CEO of The Grattan Institute
Treasurer Morrison is right, planning is the biggest lever to make housing more affordable. Current rules make it reasonably easy to build apartments in the CBD – so that is what we’re getting. But it also makes it very difficult to subdivide and create extra residences in the middle rings of our capital cities, up to 20km out of the CBD.
It’s important that new supply is focused on the inner and middle rings (2-20km out of the CBD) of our large capital cities. New developments on the edge tend to be a long way from where additional jobs are being created. Over half of the net growth in jobs in Melbourne, Sydney and Brisbane in the last five years was within 10km of the CBD. 
<a href="/images/2016/10/25/image-20161024-26504-uo2gpc.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/25/image-20161024-26504-uo2gpc.png" alt="">
<h4>Grattan Institute, Author provided</h4>
Apartments in the CBD are never going to be enough to fill the demand for accessible housing – supply is limited by a very small area of land. There isn’t much governments can do about where employers decide to create jobs. But governments can set planning rules so that housing is built appropriately.
But unfortunately while Treasurer Morrison was spruiking the benefits of making it easier to subdivide and release land, he glossed over the impact on the prices of existing homes. And simultaneously he went out of his way to argue that reforms to negative gearing would both do nothing for housing affordability and lead to a crash in house prices.
Not all of these things can be true. By definition, if housing is more affordable, then prices are lower than otherwise. It would be more honest to recognise that changes to negative gearing will have less impact on home prices – and affordability – than to planning. On the other hand, changes to negative gearing will also reduce distortion in investment decisions, discourage excessive private sector leverage, and contribute to budget repair – outcomes which should all warm the cockles of a treasurer’s heart.
<div class="hover tooltip bottom">John Daley is chief executive officer, Grattan Institute and can be contacted <a href="https://theconversation.com/profiles/john-daley-1870" target="_blank">here</a>. Joe Hurley is senior lecturer, Sustainability and Urban Planning, RMIT University and can be contacted <a href="https://theconversation.com/profiles/joe-hurley-157161" target="_blank">here</a>.; Nicole Gurran is professor - Urban and Regional Planning, University of Sydney and can be contacted <a href="https://theconversation.com/profiles/nicole-gurran-759" target="_blank">here</a>. Robin Goodman is professor of Urban Planning, Deputy Dean, Sustainability and Urban Planning, RMIT University and can be contacted <a href="https://theconversation.com/profiles/robin-goodman-213975" target="_blank">here</a>. Steven Rowley, is director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University and can be contacted <a href="https://theconversation.com/profiles/steven-rowley-201914" target="_blank">here</a>.</div>
<div class="hover tooltip bottom"> </div>
<div class="hover tooltip bottom">All are authors for The Conversation.</div>
 
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Solutions beyond supply to the housing affordability problem

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To achieve the Commonwealth Government's priorities of getting children into school, adults into jobs, and making communities safer, the Department of the Prime Minister and Cabinet (PM&amp;C) supports Indigenous housing and home ownership.
Living in a stable environment has proven an efficient way of achieving these priorities.
In the submission to House of Representatives, Standing Committee on Economics Inquiry into Home Ownership, the PM&amp;C named a few topics that affects Indigenous Australians more than others like the administration and use of Indigenous land, availability of finance, employment opportunities and limited financial understanding and exposure to home ownership.
"The Government’s priorities include getting Indigenous Australians into jobs to encourage economic development and advancement for Indigenous people. Regular and increasing incomes will enable more Indigenous people to afford to buy their own homes and enjoy the benefits home ownership can bring. 
"The national rate of Indigenous home ownership is 36%, compared to 68% for the Australian population generally. In order for the rates of Indigenous and non-Indigenous home ownership to reach parity, approximately 65,000 new Indigenous households would need to enter home ownership."
More information can be found in the IBA submission article <a href="/news/44945-home-ownership-barriers-greater-for-aboriginals-torres-strait-islanders" target="_blank">here</a>.
"The rate of remote and very remote Indigenous home ownership is lower than the national rate of Indigenous home ownership, at 18% in 2011. According to the 2011 Census, the rate of Indigenous home ownership slightly increased between the 2006 and 2011 Census. 
"Lower median incomes and higher rates of unemployment than other Australians are key factors affecting Indigenous Australians’ ability to own their own home. In 2011, the average disposable income for an Indigenous Australian was 70 per cent of the income earned by a non-Indigenous Australian.
"The proportion of Indigenous Australians aged 15-64 years who are employed fell from 53.8% in 2008 to 47.5% in 2012-13. At the same time, the proportion of employed non-Indigenous Australians rose, leading to the employment gap between Indigenous and non- Indigenous working age people widening from 21.2 to 28.1 percentage points. 
"Under the National Partnership on Remote Indigenous Housing (NPARIH), signed in 2008, the Commonwealth committed $5.5 billion to the construction and refurbishment of social housing in remote Indigenous communities. 
"Across Australia, 2,698 new houses and 7,071 refurbishments and rebuilds were completed as at 30 April 2015. Under the NPARIH, the Commonwealth’s investment in remote Indigenous housing has been used to leverage home ownership, for example by: 
<ul>
<li>jurisdictions agreeing to progress resolution of land tenure for remote Indigenous land to facilitate home ownership and economic development opportunities; </li>
<li>encouraging states to implement and support sale of social housing policies for existing tenants. A carefully-planned sale of social housing stock can boost the supply of properties in communities, help create a market and diversify housing options; </li>
<li>funding elements which support home ownership, such as cadastral surveys to define lots; and </li>
<li>focusing on regularising tenancy arrangements for remote community residents, which helps develop tenants’ readiness to maintain their own houses if they become home owners. </li>
</ul>
"The Government announced in the 2015-16 Budget its intention to replace the NPARIH with a new Remote Indigenous Housing Strategy (the Strategy) over three years totalling $1.1 billion. Home ownership objectives will form part of the new Strategy. Details of the new Strategy are currently being negotiated. 
"Current administration and use of Indigenous land can be a barrier to Indigenous home ownership. Only certain tenure types offer sufficient security of title and transferability for a lender (generally, IBA) to provide a loan. For example, in the NT, where approximately 50% of land is Indigenous-owned,six communities have agreed 99-year township leases (under section 19A of the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) (ALRA)) which offer sufficient transferability for home ownership. 
"In these communities, the head lease is held by the Executive Director of Township Leasing and there can be long-term residential subleases. As an alternative to township leases, individuals can take out leases under section 19 of the ALRA in order to pursue home ownership. 
"However, unless these leases are taken out in communities where other factors are suitable for home ownership, such as where a real estate market exists, it is unlikely lending secured by this land will be possible. In Queensland, anecdotal evidence from some communities suggests while people are interested and apply to purchase social housing, the complex process means many people drop out before becoming home owners." 
According to the 2011 Census, 70% of people rely on social housing in remote communities. Because in most of these communities social housing is the only form of housing available, there are few or no houses to buy building a market gap in these areas. Lending and borrowing becomes a higher risk, which discourages commercial banks from lending in these areas.
"The recently released White Paper on Developing Northern Australia (which can be downloaded <a href="https://northernaustralia.infrastructure.gov.au/white-paper/" target="_blank">here</a>) sets out the Commonwealth’s vision for developing the potential of the north. The White Paper reflects the importance of Indigenous people and Indigenous land to this development and announced directions for reform which could support more home ownership opportunities on Indigenous land in the future."
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Indigenous home ownership highlighted in PM Abbott's housing affordability inquiry submission

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GUEST OBSERVER
Government strategies to manage population ageing largely assume that older Australians are home owners.
There is often an implied association between home ownership and ageing well: that is, older Australians who own homes are seen as having made the right choices and as being less of a budget burden. 
The problem with this approach is that not everyone is or can be a home owner. A great many households are, for many reasons, locked out of home ownership.
My analysis of 20 years of federal government ageing strategies and age-focused analyses of the housing system shows that Australian governments of all persuasions have shared three common beliefs about the economic value of home ownership in later life. They have promoted home ownership as:
<ul>
<li>
somewhere to live;
</li>
<li>
an asset to rent or sell; and
</li>
<li>
a way to access and spend equity.
</li>
</ul>
<h2>Somewhere to live</h2>
Australian governments have valued and promoted home ownership because it provides somewhere to live in later life, with no regular ongoing costs such as rent.
As a 2015 Productivity Commission report argued:
"Because the majority of older Australian households own their homes outright, their housing costs are typically very low, yet they enjoy the benefits from continuing to live in their homes. […] This source of value (relative to overall household expenditure) becomes markedly more important with increasing age."
Owning a home is seen as largely cost-neutral, though the costs of maintaining housing are recognised in some documents. In contrast, the privately rented home is discussed as an ongoing financial burden. 
Home ownership is seen to provide economic security by freeing up income, so that people have greater disposable income for discretionary lifestyle spending in later life.
In other words, owning a home enables home owners to be consumers. While this can be seen as ensuring quality of life in older age, it also connects strongly with a broader government goal of growth in consumer spending.
<h2>An asset to rent or sell</h2>
Governments have also valued home ownership as an asset that people can rent out or sell so they can pay for costs associated with moving to “age-appropriate” housing. This includes paying bonds for retirement villages or nursing homes.
It has been suggested that older home owners are better equipped than, say, renters with the financial resources to make “appropriate” choices for housing and care in later life. 
For example, they might be able to afford to buy housing within an “active lifestyle community”. And any leftover funds can fund higher levels of consumption in retirement.
So, home ownership has been understood as an individualised way of managing the risks of ageing.
People who own higher-value housing are better off in this scenario, as they will reap greater profits if they sell their home, or secure a higher income if they rent it out. 
However, these benefits can be difficult to access. This is due to the very high costs of housing in some cities, and the risks associated with some retirement housing.
<h2>Accessing (and spending) housing equity</h2>
The third way governments have seen value in home ownership is through new financial products that enable home owners to access – and spend – home equity.
Emphasis is usually placed on the capacity to make a proportion of the home “liquid” while retaining overall ownership and the ongoing right to live in the house. For governments, this has two benefits:
<ul>
<li>
It enables older people to pay for more of the costs of older age, including for aged care. This is a way of shifting these costs away from the government in situations where people are seen as having the capacity to co-contribute.
</li>
<li>
It enables home owners “to pay for additional services over and above the approved care”, according to the Productivity Commission. This supports government goals for economic growth by expanding the aged care market.
</li>
</ul>
Funds released in this way enable lifestyle “choice” and better care in older age.
<h2>Home owners are winners</h2>
These three benefits suggest a system in which home owners are equipped with greater spending power – and hence choice – in older age. They are likely to have access to higher levels of care, and to be more able to make choices that enable them to age “well”.
Quite curiously, in some documents baby boomers are distinguished as desiring higher-quality services in later life. The capacity to access and spend home equity is seen as enabling this possibility.
The promotion of home ownership as a way of funding care in later life is part of a broader policy trend toward making people personally responsible for the opportunities they have in life. While this may make intuitive sense, it is unjust because it ignores factors that shape income and investment opportunities, including home ownership, over the life course.
Data from the 2016 Census show that households living on the median single-person income could not afford the median rent in Australia, and that home ownership is increasingly out of reach. 
Single older women are among the fastest-growing group of homeless people in Australia. And, for non-home owners, poverty in later life is on the rise.
Australia needs ageing strategies that do more than assume everyone is a home owner – or that home ownership is a simple choice.
<a href="https://theconversation.com/profiles/emma-power-250930" target="_blank">Emma Power</a> is Senior Research Fellow, Geography and Urban Studies, Western Sydney University and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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Three reasons the government promotes home ownership for older Australians

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<img src="https://counter.theconversation.edu.au/content/74926/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">GUEST OBSERVER
 They’ve saved a deposit of A$70,000 each and want to buy the same type of apartment in the same block.
Lee is able to buy off the plan with a mortgage and receive a First Home Owner Grant. Sarah is not.
What’s the difference? Sarah could be any one of 660,000-plus Australians with an intellectual disability.
<h2 class="caption">Barriers at every turn</h2>
People with intellectual disability face so many barriers to finding a home of their own that it’s hard to pick one.
Rates of unemployment and underemployment are high. Only 23% are wage or salary earners, and around one-third of these work for less than 15 hours per week.
And pay rates, according to the Australian Human Rights Commission, are “extraordinarily low”. In other words, a mortgage is largely off-limits.
For most, family support then becomes a precondition for acquiring a home. But, if family earnings have been negatively affected by their supporting responsibilities, financial assistance may not be possible.
If funds are available, one option is to create a family trust. For Sarah, a family member could acquire the apartment and act as a guarantor on a mortgage. However, unlike Lee, Sarah couldn’t get the first home owner and stamp duty concessions, which are not available under a family trust arrangement.
On the other hand, she could get Commonwealth Rent Assistance, as she would count as a renter not an owner.
Another option is for Sarah’s family to set up a “special disability trust”. This would enable her to have access to first home owner concessions, although that would require confirmation from the revenue office of the relevant state or territory.
Even then, opening a special disability trust is onerous. It requires specialist legal and accounting advice. Annual fees and reporting requirements would quickly outweigh any first home owner concessions. Further, the beneficiary can’t pay rent to the trust, which would otherwise serve as a proxy for servicing a mortgage.
A third option is to help Sarah buy a home in her own name. However, many people with intellectual disability are unlikely to reach the threshold of mental competency required under current law. The person may then need to be placed under guardianship or trusteeship.
This raises a host of human rights concerns and has the potential to further disempower the person. First home owner concessions may be available to guardians on the person’s behalf, depending on the state or territory. But, again, discovering this information tends to require specialised legal advice.
Victoria has the unusual option of appointing “supportive attorneys”. The supporter doesn’t take over decision-making, but instead helps the person by gathering information. This can be a way to avoid removing legal capacity. Yet, it appears, supportive attorneys cannot assist with the acquisition of property.
In short, all options come at a significant cost to the person or their family.
The one measure that is possibly useful for Sarah – claiming rent assistance for a property owned by a family trust – appears to exist by accident rather than design.
<h2 class="caption">Unequal and a waste of taxpayer dollars</h2>
The lack of support for acquiring a home drives people with intellectual disability into group homes, either state-run or for-profit.
While these facilities may be acceptable for some, for many they perpetuate what Gerard Goggin and Christopher Newell describe as “social apartheid”. They also make people vulnerable to abuse and marginalisation.. Nowhere is this more evident than on the ABC’s Four Corners report this week.
Group homes are also expensive. In New South Wales, the average total cost to house a group-home resident, according to the Social Policy Research Centre, is $137,000 per year. That is $2,634 per week.
Ask most people with intellectual disability and their families to suggest better ways to spend $137,000 per year, and I’m sure they’ll have suggestions for wiser public spending.
Current mindsets are fixated on congregate-care models, such as group homes, as well as highly professionalised models that cost enormous amounts.
Social housing is another option, but Sarah would have to join the nearly 200,000 Australians on a waiting list. Even if she did manage to get a home this way, it is questionable whether being congregated with other disadvantaged groups will improve her chances of social inclusion.
No wonder people are seeking alternatives.
<h2 class="caption">Low-cost and no-cost solutions</h2>
As a starting point, state and federal governments could easily provide clear information about the various options available to people with intellectual disabilities who wish to acquire a home. People shouldn’t need law degrees to know their options.
Procedural equality could be improved by giving access to first home owner concessions to people with a disability who acquire a home through a family trust. For those needing funds for a mortgage, government-subsidised co-ownership schemes could be a great help.
These solutions should not replace efforts to improve employment rates, access to mortgages and all the typical pathways to home ownership. To help open up these pathways, people with intellectual disability would need to be able to buy a home with support and safeguards.
Funds should be re-invested from congregate care to the ongoing costs of supporting people with an intellectual disability to live in their own home.
Housing policy has tended to overlook home ownership for people with intellectual disability, which suggests the “soft bigotry of low expectations” is at play.
Barriers to housing for people with intellectual disability don’t seem to have been driven by malice. Instead, these barriers emerged from countless decisions not to afford them equal opportunities. Each barrier on its own seems unfortunate; together they appear tantamount to neglect and discrimination.
Piers Gooding a Postdoctoral Research Fellow at the Melbourne Social Equity Institute, University of Melbourne and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/piers-gooding-207492" target="_blank">here</a>.
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The forgotten 660,000 Australians locked out of home ownership: Piers Gooding

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GUEST OBSERVER
For more than 100 years the average Australian family was able to buy its first home on one wage. The median house price was around three times the median income allowing young home buyers easy entry into the housing market.
 As can be seen from the graph below (ï¿½ Real Home Price Indexï¿½), the median house price has increased, in real terms, by more than 300% - from an average index of 100 between 1900 and 2000 to an index over 300 by the year 2008. Relative to incomes, house prices have increased from three times median income to more than nine times income. 
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.21.37%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.21.37%20AM.png" alt="">
Thatï¿½s $600,000 they are not able to spend on other things - clothes, cars, furniture, appliances, travel, movies, restaurants, the theatre, childrenï¿½s education, charities and many other discretionary purchase options. 
It is a similar story in the UK, US, Canada, New Zealand, Ireland and Japan. The economic consequences of this change have been devastating. The capital structure of these countriesï¿½ economies have been distorted to the tune of hundreds of billions of dollars and for those on middle and low incomes the prospect of ever becoming homeowners has now all but vanished. 
Housing starts are below what they should be and so have all the jobs associated with them - civil construction, house construction, transport, appliances, soft furnishings, you name it. Not to mention billions of dollars in lost taxes and other housing-related revenue to the nation state. 
The distortion in the housing market, this misallocation of resources resulting from the supplydemand imbalance is enormous by any measure and affects every other area of a countryï¿½s economy. New home owners pay a much higher percentage of their income on house payments than they should. Similarly, renters are paying increased rental costs reflective of the higher capital and financing costs in turn paid by landlords. 
12th Annual Demographia International Housing Affordability Survey (2015: 3rd Quarter) The economic consequences of all that has happened over these past 15 years have been as profound as they have been damaging. 
The housing industries of these countries have been decimated as have industries supplying that sector. Economies have been distorted and getting them back into alignment is going to take some time. But it is a realignment that is necessary. A terrible mistake was made and it needs to be corrected. Home ownership has long been a feature of western life. Levels of home ownership rose sharply in the postwar period. 
Home ownership had become both a symbol of equality and a means through which average citizens could provide security and stability for themselves and their families while building wealth and claiming a tangible stake in their nation. For the vast majority, owner-occupation of the home in which they live was, and remains, a great ambition. So what happened? Why have ï¿½house pricesï¿½ skyrocketed?
 While influential bodies in Australia like the Productivity Commission and the Reserve Bank focused their attention on demand drivers like capital gains tax treatment, negative gearing, interest rates, readily accessible finance, first home buyers' grants and high immigration rates, few were looking at the real source of the affordability problem - land supply for new housing stock. 
It is undeniable that demand factors played a role in stimulating the housing market and those factors were, for the most part, in the hands of national governments. However, the real culprit, the real source of the problem, was the refusal of local and state governments and their land management agencies to provide an adequate and affordable supply of land for new housing stock to meet demand. 
The graph below (Capital Cities: Price of Land per sq/mï¿½) highlights the growth rate in the price of serviced allotments in Australiaï¿½s five mainland capital cities. This massive escalation in the price of land carries with it a multitude of detrimental impacts. Establishing affordable rental accommodation for those in greatest need becomes even more difficult for social and public housing authorities as they seek to purchase land and housing in a greatly inflated market. 
<a href="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.23.19%20AM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/01/27/Screen%20Shot%202016-01-27%20at%209.23.19%20AM.png" alt="">
Road widening and major infrastructure projects experience cost blow-outs as land acquisition costs skyrocket, and establishing schools, community centres, health services and business facilities becomes difficult, and at times impossible. 
The whole community suffers as a result of increased 12th Annual Demographia International Housing Affordability Survey (2015: 3rd Quarter) tax, transaction, finance and establishment costs. It is important to remember that the "scarcity" that drove up land prices is wholly contrived - it is a matter of political choice, not geographic reality. 
It is the product of restrictions imposed through planning regulation and zoning. The problem is, it is young home buyers, hit with spiraling costs of home ownership who end up paying. They are mostly forced into overpriced units and will never be able to afford their primary ambition ï¿½ a free-standing family home of their own. Quite apart from the economic foolishness of it all, it is morally wrong for legislators to be enriching some (established home owners) while impoverishing others (first home buyers). 
We cannot deny the rising generation a home of their own merely to satisfy the ideological fantasies of urban planners and the financial concerns of State and Territory Treasury officials. We cannot deny ourselves the joys of grandchildren because young women have to work to pay mortgages instead of raising a family. The joke that high mortgages are the new contraceptive is becoming no laughing matter. Young women used to be afraid of getting pregnant, now, as they approach 40, they are afraid of not getting pregnant. 
We have to get back to the situation where a couple can pay off a mortgage on one income so they can start a family in their 20s, not in their late 30s or early 40s. In creating the conditions for home ownership to become the privilege of the few rather than the rightful expectation of the many, governments have produced intergenerational inequity and breached the moral contract between generations. 
In human affairs this imprecise, and at times neglected, moral contract between generations dictates that we should leave things better than we find them. When it comes to home ownership this contract has been breached. In making home ownership much harder for the next generation we have denied them much more than a home. We have denied them the security and benefits that go with home ownership and the opportunity to build wealth that will provide them with options in later life. 
Many are now choosing to defer having a family in the hope that they will be able to somehow put together the funds to buy a home later in life. If they can't afford to buy a house, they certainly can't afford to have children! 12th Annual Demographia International Housing Affordability Survey (2015: 3rd Quarter) When the time for retirement comes, those who own their homes have much more control over their lives than renters. 
They can choose where they will live and how they will live. Given the vast social and economic benefits that flow from homeownership, restoring housing affordability should once again become one of a nationï¿½s most important priorities. 
Senator Bob Day, a former National President of the Housing Industry Association, <a href="https://www.demographia.com/dhi.pdf" target="_blank" style="line-height: 1.3em;">wrote the forward for the 12th Demographia report</a>. He was elected as a Senator representing the State of South Australia at the 2013 Australian Federal election.
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High mortgages are the new contraceptive: Senator Bob Day

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GUEST OBSERVER
ABS data showed a further moderation in home price growth over the year to the June quarter to 4.1 percent, but June quarter growth was 2 percent plus (or 8 percent plus on annualised basis) in Sydney and Melbourne which indicates these cities remain too hot. 
A surge in auction clearance rates suggests they may have become even hotter lately. 
There is not much the RBA can do, but it is an issue for APRA to keep an eye on.
<a href="/images/2016/09/27/auctions_normal.png" target="_blank">Click to enlarge</a>
 <img src="/images/2016/09/27/auctions_normal.png" alt="">
Meanwhile, Australia’s population popped 24 million in the March quarter. While population growth has slowed to 1.4 percent year-on-year from a peak of 2.1 percent in 2008, it appears to have stabilised, remains strong compared to most other advanced countries, will help drive reasonable potential economic growth and continues to underpin long term housing demand. 
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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Further moderation in home price growth: Shane Oliver

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GUEST OBSERVER
The appointment of Gladys Berejiklian as NSW Premier and her suggestion to review all options to address housing affordability should provide some optimism for a generation of young Australians who have a very real fear that owning their own home is fast (if not already) slipping beyond their reach.
As it stands, in Sydney the average home costs 12 times the average household income (20 years ago this was only four times), stamp duty tax has increased by a jaw-dropping 750 per cent over that same period in NSW and while building approvals in metropolitan areas is on the rise, lower interest and strong population growth have combined to increase demand for property faster than we can supply them. Throw this all into a melting pot and what we are left with is; a housing affordability crisis.
So in search of answers, LJ Hooker conducted a survey of more than 2,600 property owners which found that stamp duty was a major factor in the decision making process for those looking to sell and buy property.
The survey found that 51 percent of home owners that received an appraisal by a real estate agent but did not subsequently list their property for sale, would, in fact, do so if stamp duty was lower. This figure rose to 61 per cent if stamp duty was abolished altogether.
These numbers highlight the chokehold the current stamp duty tax has on the secondary market; Australians families would like to sell, move and relocate but cannot afford the cost of transacting. According to our data the reduction or removal of stamp duty will see more properties come onto the market, which in turn will help balance the current supply and demand issue.
But solving housing affordability is not a one-step process, nor is there one bandaid answer. Instead, state and federal governments should work together to look at a number of solutions which could elevate housing stress, so our children’s children will be able to afford property in all the major cities across Australia.
Here at LJ Hooker, we think these changes to the below three policy areas will help the likes of Premier Berejiklian, and her kin across Australia solve housing affordability issues:
1. Affordable housing
Recent strong price growth across our capital cities has seen low-income and essential service workers such as teachers, nurses and emergency service workers priced out of most inner city markets. However, these areas still require the services that these workers provide.
The provision of affordable housing for these low and middle-income families is required to ensure a diverse range of households have access to housing across all areas of our capital cities. 
However, at present, it has not been feasible for developers to provide affordable solutions. The government, therefore, needs to step in with incentives to ensure the delivery of affordable housing can occur. After all having nurses live near hospitals, and teachers live near schools just makes sense.
2. Removal of stamp duty
The high cost of selling, buying and moving home has reached a point where people are reconsidering and/or delaying their next property move. Recent strong price growth, and the fact that stamp duty is calculated on the value of the property, means that it has reached a point where it is having a big impact on the budgets of property buyers.
The scrapping of stamp duty would directly assist housing affordability by helping increase the mobility of the population and encourage owner-occupiers to upsize and downgrade into a property that suits their changing needs without being slogged with an exorbitant tax. This will insure more properties become available for sale, helping balance supply with demand and insuring more families get to grow up in their home of choice.
3. Regionalisation and decentralisation of government services and businesses
The growing population across all capital cities and the increasing cost of providing infrastructure to the masses mean that decentralisation of businesses, households and government departments is becoming essential.
With more than 90 per cent of the Australian population living in capital cities, there is a need to incentivise businesses to relocate, or start-up, some or all, of their business in our major and minor regional centres.
This regionalisation will boost the economies of these smaller regions and provide employees access to more affordable housing in these areas. It will also elevate some stress and demand on infrastructure, services and housing in capital cities.
We look to our politicians and decision makers to take these policies under consideration. Inaction will only perpetuate the issues faced by Australian families. Their needs to be decisive structural change to make the long-held Australian dream of home ownership a reality for all Australian families and individuals. 
Grant Harrod is chief executive officer of JL Hooker and can be contacted <a href="https://about.ljhooker.com.au/leadership-team" target="_blank">here</a>.
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Three solutions to the housing affordability crisis: LJ Hooker's Grant Harrod

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The ANZ submission to the House of Representatives Inquiry into Home Ownership suggests that achieving balance between government and private sector "can assist with managing demand uncertainty and responding to changes in consumer needs". 
"State governments and local councils have been slow to release land in response to the surge in migration from 2004. Natural geographic constraints to expanding the city fringe complicate this process in cities such as Sydney. 
"Adding to this bottleneck, the process for converting rural land to new dwellings can take six or more years in some cities.
"For suburban and inner-urban redevelopments, planning approvals from State government and local council are frequently subject to lengthy delays and policy changes are commonplace. This makes developing inner city properties more expensive and drives apartment prices up."
In the financial institution's view, in order to achieve higher funding availability, lower funding costs and earlier funding of projects, consumers should carry more of the risk.
"At present, buyers in all States except Queensland can pay a 10% deposit for an off-the- plan purchase with the remaining 90% paid on practical completion. ANZ’s experience is that this deposit has proven to be an inadequate pre-estimate of the loss that a developer suffers if a buyer does not complete a contract. 
"When a buyer fails to complete the purchase, a seller is exposed to: 
<ul>
<li>  Loss on sale price if the market has fallen; </li>
<li>  Additional legal expenses associated with the resale; </li>
<li>  Holding costs (including interest on debt, greater levels of land tax and local council rates, and higher insurance premiums); </li>
<li>  Marketing and agent commissions; and </li>
<li>  Costs of enforcement against a defaulting buyer or in claiming a disputed deposit. </li>
</ul>
"Housing demand has been driven over the last decade by rapid population growth, largely resulting from immigration. The acceleration in population growth was most concentrated in Sydney and Melbourne and was not matched by increasing construction of new residential dwellings. Demand is also affected by general economic conditions, including interest rates and labor market conditions. 
"ANZ expects subdued economic conditions in coming years and a higher unemployment rate will impact consumer confidence and the financial capacity of households (ie household income growth), despite an extended period of low interest rates. 
"In recent years, investors have been increasingly attracted to residential property as an asset class due to solid long-term risk-adjusted returns (including low downside volatility), the low cost of borrowing, and solid underlying market fundamentals. Investor's lending now accounts for 50% of total housing finance, slightly higher than peak in 2003-04. 
"We estimate that ‘realised’ foreign investment added around AUD12-18 billion to dwelling investment in 2013-14, and contributed to the increased supply of housing available for rent. 
The top 40% income earners accounts for four-fifths of investor housing debt. The increase in years to save for a deposit contributes to the decline in home deposit affordability.
"An ageing population will depend less on income and more on financial wealth to support home ownership choices. Figure 1 shows the most recent data on households by dwelling type, from 2011. It reveals a strong bias towards detached housing, particularly amongst age groups over 35 years. Higher-density housing is more common among under 35s (37%) and over 65s (23%). 
<a href="/images/2015/08/05/Screen%20Shot%202015-08-05%20at%205.19.16%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2015/08/05/Screen%20Shot%202015-08-05%20at%205.19.16%20PM.png" alt="">
"ANZ supports the supervision and measures now in place to monitor risks to financial stability posed by housing.  
"In net terms and absent the policy changes and other recommendations made here, we expect increasing home prices, weak household income growth, stable interest rates and increasing underlying pressure on the existing housing stock will continue to reduce housing affordability across all measures in coming years."
 
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ANZ blames metro Sydney and Melbourne price rises on supply mismatch

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<img src="https://counter.theconversation.edu.au/content/79578/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Rising mortgage debt is affecting everything from employment to spending, as Australians approach retirement, our study finds. 
Higher levels of housing debt among pre-retirees are linked to them working for longer.
We found for a home owner aged 45-64 years, the chances of being employed are around 40% higher for every additional A$100,000 in mortgage debt owed against the family home.
There’s also a link between house price changes and household spending. For every A$100,000 increase in the value of a person’s house, annual household spending of home owners increased by around A$1,500. These home owners are willing to increase their spending because they’re able to borrow more against their home to finance it.
Long-run trends in mortgage debt
Australians are paying down their mortgages later in life. The percentage of home owners aged 25 years or over who are carrying a mortgage debt climbed from 42% to 56% between 1990 and 2013.
Mortgage debt burdens among pre-retirees have soared. For home owners aged 45-54 years, the incidence of mortgage debt has nearly doubled from 36% to 71%. Among those aged 55-64 years, this incidence has more than tripled from 14% to 44%.
<a href="https://www.propertyobserver.com.au/images/2017/06/29/Screen%20Shot%202017-06-29%20at%201.18.41%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/29/Screen%20Shot%202017-06-29%20at%201.18.41%20PM.png" alt="">
These trends reflect at least two things. Higher housing cost burdens have resulted in a decline in home ownership rates among young people. Those able to access home ownership are doing so later in life and by taking on higher levels of debt relative to their incomes.
Flexible mortgage products also now allow home owners to unlock wealth stored in the family home whenever required, and not just their retirement years.
Higher mortgage debts, longer working lives
Australians are working longer because they are paying down their mortgages later in life.
Our modelling, based on the 2001-2010 Household, Income and Labour Dynamics in Australia (HILDA) survey data, shows that pre-retirees aged 55-64 years are 18% more likely to continue working for every A$100,000 increase in their mortgage debt.
On the one hand, unexpected increases in housing prices could have caused buyers considering home ownership to borrow more in order to buy a house, and encouraged homeowners to spend more by withdrawing the equity from their homes. These mortgagors then have to extend their working lives to meet higher mortgage repayments.
On the other hand, longer life expectancy may have encouraged many Australians to plan longer working lives. Carrying higher levels of mortgage debt later in life could be a financial tactic to finance their spending over a longer lifespan.
Borrowing more, spending more?
Our analysis found some differences between subgroups of home owners and between periods preceding and following the global financial crisis.
Before the global financial crisis highly indebted home buyers were more prepared to use their mortgages in order to bridge the gap between spending plans and income. After the crisis, home buyers with large mortgages were less willing to use their mortgages in this way.
In contrast, the spending plans of indebted households who both own their home and a second investment property seem more sensitive to house price movements since the global financial crisis. Property investors with mortgage debt increased their average yearly spending after the crisis from A$1,700 to over A$2,800 for every A$100,000 increase in their housing wealth.
On the other hand, for home owners with no investment properties, average yearly spending tightened from A$1,700 to A$1,500 for every A$100,000 increase in their housing wealth. This suggests investors with debt are not so risk-averse as other homeowners.
Housing, productivity and the economy
Mortgage debts have important economy-wide effects through interactions with labour markets and consumer spending.
Ageing is often associated with lower rates of labour force participation and declining physical and mental health, which can result in reduced productivity growth. If people are extending their working lives to repay higher mortgage debt, this could mitigate some of the productivity consequences of population ageing, albeit at the expense of greater exposure to debt in later life.
When real house values are rising, home owners and property investors are able to borrow more against their home to finance their spending. In the short run this can help offset the effect of stagnant wages (on their spending) and thereby sustain growth momentum in the economy.
But if wages fail to pick up, these higher levels of debt can be a drag on growth. High levels of indebtedness also increase exposure to house price and interest rate risk, and pose a threat to macroeconomic stability.
Our research makes a compelling case for considering housing differently, as essential economic infrastructure. Housing needs to be re- positioned from the periphery to a central place within national economic policy debates. This could be crucial to an understanding of how our housing system can promote rather than curb economic growth in Australia.
<a href="https://theconversation.com/profiles/rachel-ong-113482" target="_blank">Rachel Ong </a>is Deputy Director, Bankwest Curtin Economics Centre, Curtin University.
<a href="https://theconversation.com/profiles/gavin-wood-113723" target="_blank" style="font-size: 12.16px;">Gavin Wood</a>is Emeritus Professor of Housing and Housing Studies, RMIT University. 
<a href="https://theconversation.com/profiles/kadir-atalay-385521" target="_blank" style="font-size: 12.16px;">Kadir Atalay </a>is <a href="https://theconversation.com/profiles/kadir-atalay-385521" target="_blank"></a>Senior Lecturer in Economics, University of Sydney.
<a href="https://theconversation.com/profiles/melek-cigdem-bayram-181846" target="_blank" style="font-size: 12.16px;">Melek Cigdem-Bayram </a>is <a href="https://theconversation.com/profiles/melek-cigdem-bayram-181846" target="_blank"></a>Research Fellow, RMIT University. 
All are authors for The Conversation.
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