Australian housing over the last two-decades has moved from smaller, more manageable homes to larger, more grandiose properties that come with a higher price tag. Plus, 20 years ago, almost half of the Australia population owned their own home outright, with the minority renting. Today’s story is far from this.
According to Australian Bureau of Statistics (ABS) home ownership and rental data from the 1990s through to 2014, the number of Australians who were renting in 2013/14 was almost the same as the number who owned their home outright. In 2013/14, 31.4 percent of home owners owned their home outright compared to 41.8 percent who owned their home outright in 1994, and 31 percent were renting, this is compared to 25.7 percent who were renting in 1994. The number of home owners who had a mortgage has also increased from 29.6 percent in 1994 to 35.8 percent in 2013/14.
If the level of home ownership had stayed the same as it was in 1994, then it is estimated that 370,000 more households would be buying their home rather than renting. So what’s changed since the 1990s?
Changes in Australian Housing Costs Since the 1990s
Apart from the cost of living rising and our dollar not being worth as much as it was in the 1990s, the cost of housing has also risen steeply. In fact, according to research, Australia is in the top ten for ‘most overpriced housing’ in the worlds developed nations. Historically speaking, Australian home prices and rents have risen since 2000 until the Global Financial Crisis (GFC), with prices then becoming steady in most capital cities and states.
Rising house prices have led to Australian home buyers having larger mortgages, which, in turn, has seen rents rise. In 1994 to 1995, owners without a mortgage had an average weekly housing cost of $37, by 2013/14 this had risen to $47. On the other hand, home owners with a mortgage had a weekly housing cost of $318 in 1994/95, by 2013/14 this had jumped to $453 a week.
Publicly rented housing had a weekly cost of $102 in 1994/95, but by 2013/14 this had jumped to $148 a week. In comparison, privately rented homes cost $232 a week to rent in 1994/95, this rose to $376 a week in 2013/14.
Average Weekly Housing Costs
The average housing cost, as a proportion of income, for homeowners without a mortgage has remained steady at 3 percent from 1994 to 1995. Home owners with a mortgage have consistently paid between 16 to 18 percent, whereas private renters have paid between 18 to 20 percent.
In 1995, when standard variable home loan rates hovered around 10.5 percent, housing costs for mortgage holders were approximately 19 of their income. In 2013/14 these costs were 16 percent and the standard variable rate was almost half that of the 1990s at an average of 5.45 percent.
However, when looking at historical data, you need to consider that the proportion of renters has increased over time, and so has average household income. Therefore, this will reduce the cost of renting.
When renting costs and home ownership costs are compared over the last 20-years this highlights how much rental costs have risen since the GFC. In 2002/03, based on todays monetary value, home owners with a mortgage were paying approximately $100 a week, by 2013/14 this had risen to $140. Over the same time periods, private renters were paying $110 in 2002/03, with this cost rising to $162.07 by 2013/14.
Where are Australian Home Prices Heading?
The housing market in Australia is entering into a cooling phase. This means that the years of explosive growth are gone and that home prices are expected to stagnate.
According to data, Sydney is cooling quickly and is expected to grow at just 4 to 9 percent over the next 12-months to June 30, 2016. The Perth market will grow at 4 to 7 percent, Darwin 2 to 6 percent, and Melbourne 8 to 13 percent. Hobart, Adelaide and Brisbane are expected to have marginal growth.
Nationally speaking, growth collectively is expected to rise at 3 to 8 percent, compare to 9.8 percent over the last 12 months. This is the slowest rate of growth since 2012. Auction rates in capital cities have been falling over the last month and its estimated that the national average could fall by as much as 7.5 percent.
Rental prices will follow suit. Nationally rental prices are expected to rise by up to 3 percent.
How Will Rising Interest Rates Impact on the Housing Market?
The interest rate rises that Australias big four banks — Westpac, Commonwealth, the Australia and New Zealand Banking Group (ANZ) and National Australia Bank (NAB) — have announced are expected to have a significant impact on the property market. Auction rates are expected to slow further, especially now that investor lending has been capped and the Australian Prudential Regulation Authority (APRA) have restricted investor lending numbers and increased lending guidelines. These changes have reduced investor cash flow making it harder for them to buy more property.
Economists suggest that the Australian property market is overpriced, and that when the market cools it will fall back into line with economic growth. Housing price growth, they say, will moderate, which will be beneficial for household debt and the economy. At present its estimated that Australian property is overvalued by about 10 percent and the Sydney property market is overpriced by 16 percent.
In 1990, the household debt-to-income ratio sat at 47 percent. Today this is estimated to be 154 percent. This is why APRA have ordered that the big four banks increase their capital holdings so that they reduce the risk of economic loss should home loan holders default on payments due to property market shifts.
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Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!