Australian housing will need to adapt to meet the demand of an increasing population with varying needs, over the next two decades, as family types are expected to change and home prices are predicted to increase.
According to the Australian Bureau of Statistics (ABS), over the next 25-years the total number of Australian households will rise to 12.7 million, this is an increase of approximately 4.5 million households. Of this number, couple-only families are anticipated to be the largest type of family that will increase in number.
In fact, based on 2011 figures, couple-only families are expected to rise by 64 percent to a staggering 3.8 million families by 2036. This is attributed to an ageing population with Baby Boomers and Generation X becoming empty nesters.
While family households are expected to make up 70 percent of the Australian population, it is predicted that a surge in the number of one-person households will also increase by 2036. If this is the case, then planners and builders will need to ensure that the right types of homes are available, and they also need to ensure that these homes are affordable.
Acknowledged as the number one concern amongst those seeking to buy a home, housing affordability looks to continue being an issue well into the future, especially when there is no end in sight for price rise in some Australian cities. Housing affordability is not only a concern for those looking to buy their first home, or for those who are struggling to meet home loan repayments on a property they are buying, but it’s also a social concern for those who are seeking to rent. Secure housing is essential to everyday living, especially for those who are unemployed or experiencing family breakdowns. Housing provides stability and certainty that individuals and families need to face daily challenges in life.
But when home prices over the past 25-years have increased at more than twice the amount that wages have, with more than 30 percent of household income now going on home loan repayments, this breeches the commonly accepted housing affordability threshold. For some Australians, this means that buying a home is out of reach, and for those renting, that they have to look for share accommodation to find somewhere affordable to live.
Housing affordability can be measured in a number of ways, such as median home values compared to interest rates and the average wage. However, the most common method of affordability measurement is the ratio of household income to property prices. In Australia, household income is decreasing and property prices are increasing.
According to the Australian Bureau of Statistics (ABS), who have been measuring Australia’s household income growth since 1996, the average inflation-adjusted household income, pre-tax, has flat-lined since 2008. Household income boomed in 2003, after commodity price rises, but the Global Financial Crisis and falling commodity prices since then has moderated household income growth substantially. Based on this, Australian household income is expected to remain weak for some time.
Whereas over the past six years, Australian home prices have rapidly increased. The latest CoreLogic RP Data reports that capital city home values have increased by 43.1 percent since December 2008 and June 2015. In Sydney, property price growth was much higher with a 68.7 percent increase being recorded. However, since 1995, home prices have increased by as much as 436.6 percent, and unit values have risen by 330.4 percent. Of course, over this time there have been price falls, but largely property values have climbed.
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Home prices rise and fall, and then rise again depending on the economic circumstances of a region. This is a typical cycle. For instance, in Western Australia, the Perth housing market experienced high growth due to mining investment in the area. During 2014, Perth property prices rose by 8.4 percent, which was 4 percent higher than during the first mining boom that occurred in 2005 to 2007. But, property prices in Perth are now beginning to fall, and renters are now becoming first home buyers as low interest rates have encouraged them into the market. This, in turn, is seeing a decrease in rental demand, with rents falling and vacancy rates increasing.
While many people believe that lower interest rates automatically make homes more affordable, what tends to happen is when interest rates fall home prices start to go back up. This is attributed to the fact that demand for property rises, and with increased demand comes an increased price.
Overall, it can be said that housing affordability affects everyone. High housing costs act as a deterrent for people to mover to more appropriate locations, it prevents people from downsizing or upsizing, and it deters them from moving interstate for employment. However, the group that it affects the most is those who don’t own a home.
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Tags: Home Buying