In the past Generation Y have been branded with a less than flattering reputation as selfish, spendthrifts. Perceived as wanting it all and wanting it yesterday, older generations tended to believe that this young demographic group were incapable of financial sensibilities and as such, would struggle to get a foot on the increasingly pricey property ladder.

However the days of carefree spending and sponging off their parents could be a thing of the past for many Gen Y’s according to the results of a recent housing affordability study.     

The results of the Housing Affordability Sentiment Index, published in a Herald-Sun article, reveal that most Gen Y’s are prepared to forego many luxuries in order to achieve their own great Australian dream of home ownership.

More Gen Y’s are sacrificing their independence to live at home longer in an attempt to save for a deposit – a trend dubbed the “Famwich” and despite ongoing talk of affordability issues, they remain optimistic about their ability to get their foot in the property door in the future.

Social commentator David Chalke, says young Australians aged 18 to 31 have been unfairly labelled as non-committal and self-indulgent, but on the contrary, they’re actually focused on their future and determined to get ahead by budgeting and saving.  

“Gen Ys are better educated, more connected and informed, active savers and smarter than previous generations,” he said.

In fact it would seem Gen Y’ have more in common with their baby boomer counterparts than this older generation would be prepared to admit, with a renewed focus on saving rather than spending among Australians today.

Economic uncertainty, rising interest rates and poor consumer confidence have taken their toll on Australians, with the “greed is good” attitude that saw many take on enormous consumer debt earlier this century being replaced with the financial conservatism displayed by our parents’ generation. 

The report, which polled 2200 people nationally, said Gen Y’s are prepared to spend less on discretionary purchases such as brands and luxuries (91 per cent), entertainment and recreation (76 per cent) and car upgrades (76 per cent) to achieve their housing dreams and most are prepared to give up a swimming pool, extra space or multiple bathrooms.

Interestingly though more than half were not willing to sacrifice location, with an overwhelming desire to live within 10 kilometres of their ideal location. For some, this is the suburbs where they grew up, but for many upwardly mobile young Aussies, their money is on the inner city where employment opportunities and lifestyle are an undeniable drawcard. 

Watch out for the Gen Y’s – they be shaping the future of our property markets.

Backyards, barbeques and big houses have been the norm with Australian home owners for generations. But what of future generations?

Some demographers suggest we are so in love with the idea of having big spaces to raise a family that it’s impossible for us to change, even as our population is set to grow exponentially over the next fifty years and many are concerned as to where all of these new people will live.

Sure the baby boomers and many of their Gen X offspring have found it hard to sacrifice sprawling McMansions in favour of smaller accommodation, but will Gen Y be more inclined to embrace higher density living?

An  article in Smart Company last year points to a new report from the Grattan Institute, which indicates a growing trend toward apartment style accommodation in Australia.

The study, aptly entitled The Housing We’d Choose, found that Australians want more apartment-style housing and are moving away from detached housing.

It also found we’re not building enough of the type of accommodation more and more people want.

Not enough apartments to go around

In 1976, detached dwellings made up 78 per cent of all accommodation, however by 2006 this had dropped marginally to 74 per cent.

While 4 per cent doesn’t represent an enormous decrease, it’s interesting to note that many respondents indicated a preference for apartment living, with the issue being a lack of higher density stock compared to the vast number of detached homes on the market.

The report suggests that there are potentially thousands of tenants and home buyers out there who simply cannot find the type of accommodation they are seeking in the places they most want to live.

Author of the report, Jane-Frances Kelly, says there is an ever increasing divide between the style of housing people want and what’s available and that the construction industry needs to be more aware of our changing needs and place greater emphasis on affordable, higher density options.

Over the years our perception of townhouse and apartment living has changed. Where once we saw medium and high density developments as “slums” intended for lower socio-economic classes, in the last twenty or so years apartment and townhouse living has become the practical and trendy alternative, sought after by young, upwardly mobile professionals in particular.

“In short, many of the detached houses…are a legacy of a time when Sydney and Melbourne were different cities. Today’s stock reflects attitudes formed and decisions made under different conditions, some of which no longer apply,” says Kelly.

So why aren’t we building more apartments?

Well we are…. in some locations.

The growth in apartment popularity has certainly influenced the Melbourne skyline of late, with a saturation of new stock hitting the market and more set to come on line in the next twelve months.

In fact I’m concerned that there will be an oversupply of apartments in the Melbourne CBD that this will create a severe price correction in that market. Especially as many have been bought by investors, some who won’t be able to settle their purchase and others who won’t be able to find tenants at a time when we have fewer overseas students coming to Australia.

An oversupply of CBD and new near city apartments is also looming in Brisbane.

But in general the high cost of land, local council restrictions, the resistance of local communities, high development costs and difficulty obtaining funding is stifling new apartment development in many of our inner and middle ring suburbs.

Then of course there are the infrastructure constraints to consider – namely pubic transport access and the capacity for existing roads and public facilities, such as schools and hospitals, to handle the type of rapid growth in resident numbers that higher density housing would create.

Some lessons for investors

Let’s face it…as our population grows there’s no doubt we will need to embrace the apartment culture.

This should not be a real problem as fortunately our lifestyle preferences are changing with many Gen Y’s prepared to trade a back yard for a balcony.

It’s no coincidence that over the last few years investors who owned well located apartments have done well as capital growth and rental growth has often outpaced growth in detached housing.

But as always… you can’t just buy any apartment and hope it makes a good investment. I’d steer clear of generic, off the plan, and in particular, CBD stock. Inherently these lack scarcity and will be more risky in the next few years due to the glut of similar developments coming on line.

For my money, you would do much better buying an established apartment in a highly sought after, near city or bayside locations where you’ll find smaller, boutique style apartments and townhouses that are always in favour with buyers and tenants. Sure they might need a bit of a facelift, but this is just a chance to add value to what already represents an asset with excellent potential for strong long term growth.

via propertyupdate.com.au

When collateral for one loan serves as collateral for other loans as well, it is called cross collaterization. The most common example being the case when a person wants to buy a new residential investment property using the family home as the collateral security.
Note:The properties being used as collateral both need to valued by a registered valuer unless the Loan To Value Ratios are so low that an existing rates valuation will suffice.

For most people starting out in the investment world however it is a long wait before they have enough equity in their home so that they can cross collateralise into another property.

So whats the solution?

Stock Trading

How can this be useful for buying shares? Borrowing against your home to buy blue chip shares is a great way to unlock some of the equity you have created over the years without having to take out too large a mortgage as you might if you were borrowing to buy another home. It also allows you to invest in income producing assets sooner than you could if you waited until you could afford that next investment property. The reason this is possible is because banks will allow some assets (like property) to be borrowed against, up to a “Loan to Value Ratio,” or LVR of 90%. This is the relative amount of the sum loaned against a property with respect to its value, for example, a house that is valued at 500,000 with 250,000 debt has an LVR of 50%. That is, the owner has borrowed an amount which is 50% of the value of the property. Some or the entire remaining equity can be utilized as collateral for another mortgage. Cross collateralization is usually used to acquire additional property however it is not unusual for more risk adverse investors to also cross collateralize their homes into the share market.

If you are the sort of investor who wants to follow a strategy like this remember that leverage is a double edged sword, the returns are magnified on the way up but they are also magnified on the way down.

This is a question that has been asked of me a thousand times over the years and basically the answer is the same in Australia and it is in New Zealand.

In this article one of Australia’s top commentators on real estate discusses the merits of old vs new with respect to property investment.

Go for it Michael

In spite of the battering that the residential market has taken of late, many Australians still aspire to own investment property.

When considering whether to buy new versus older property, price is only ever part of the equation.

And buying a new dwelling has numerous benefits over buying a second-hand property.

One important benefit that new homes offer investors is great capital depreciation, with up to 60% of the built cost being tax-deductible over time.

When considering a brand new investment property, and in particular, when deciding to build or purchase off the plan, it is wise to obtain advice from a depreciation specialist as early in the planning stages as possible.

That way, an investor will be aware of the best choices to make in order to maximise depreciation benefits.

For example, when a property is being built, the selection of fittings and fixtures will determine their dollar value in terms of depreciation deductions.

And this, in turn, will make a difference to the cash flow potential of a new investment property.

Let’s look at floor coverings by way of an example – carpet, versus timber floorboards, versus tiles.   For depreciation purposes, each of these is deemed to have an effective life.  Carpet – 10 years; timber floorboards – 15 years; and tiles – 40 years.

A $2,000 outlay on floor coverings, for example, would result in the following depreciation benefits in the first year:  Carpet – $400; timber floorboards – $267; and tiles – $50.

Similarly, for a $2,000 expenditure on lighting, ornamental lights with a five-year effective life would incur an $800 depreciation benefit in the first year, versus down lights with a 40-year effective life and a $50 depreciation benefit in the first year.

And naturally, depreciation benefits continue in subsequent years until all amounts are exhausted.

Armed with this sort of knowledge, an investor might find it financially viable to upgrade a level of finish from, say, low to medium or medium to high.

But it takes an expert in the field to keep up with the machinations and new methodologies of the ATO, and to structure depreciation schedules that will maximise benefits for owners.

These days, for example, renovating is on the rise.  And what some new or would-be investors may not know is that they can claim deductions for an old property that is scrapped.

When building a new investment property and tearing down an old home, items that are scrapped or removed, such as carpet, air conditioning units, stoves etc, may have left over value that can be claimed as a tax deduction in the year of removal.

The same applies to the qualifying structural element of the property.  But the important thing is to obtain a tax depreciation report pre-demolition, in order to be eligible for any savings at tax time.

Depreciation is basically a numbers game, but with a twist.  Broadly speaking, most of a building is claimed at 2.5% per year for 40 years, however, up to 25% of the total construction cost can be written off more quickly.

Good luck with that investment.

via matusikmissive.wordpress.com

Australia’s lenders repossessed 22.5 per cent more homes in 2011 than in 2010, new data has revealed.

A number of NSW beachside suburbs on the Central Coast were hit hard, with Terrigal and The Entrance both recording a high number of repossessions.

The western suburbs of Sydney were also hard hit.

The latest repossession figures come as little surprise to industry pundits, with recent data from Genworth Financial showing more than 25 per cent of Australians are currently suffering from mortgage stress.

According to Genworth’s latest Homebuyer Confidence Index, released in September, mortgage stress has increased from 21 per cent in March 2011 to 25 per cent.

RFi director Alan Shields told Real Estate Business that borrowers were struggling under the rising cost of petrol, electricity and groceries.

“The general cost of living has increased dramatically over the past few years and this is impacting borrower confidence. In addition, at the time of this study, the carbon tax was also playing upon people’s minds,” he said.

via rebonline.com.au

Buying your next home, especially if it’s your first home can be a daunting task. It’s exciting but full of complexities.

While it’s likely to be the largest financial transaction you will ever make, we’ve found that many home buyers are poorly prepared to ensure they make a good purchase decision.

And it’s not their fault. The system is stacked against them, with much of the power being on the side of the seller.

To help you, let’s look at 13 Common Mistakes made by Home Buyers – ones that you should avoid.

1.       Not doing proper research and preparation

Understand your family’s finances and needs.  The wise home buyer will analyse assets, decipher debts and get pre approved for finance before plunging into the house hunt.

Get to know the neighborhood – remember you’re not just buying a house; you’re also buying a location. It’s important to find out about the quality of schools, the crime level, transport and possibly upcoming zoning issues. Not all parts of every suburb are ideal spots to live.

2. Choosing the wrong mortgage

To put you in the best negotiating position, it’s critical to have your loan preapproved (not just pre qualified) before going house hunting.

Find out how much house you can afford – but you can’t simply go to a bank’s Internet site, use the calculators to see how much you can borrow and assume you’ll get a loan. There’s a big difference between what the banks indicate they can lend you and what they actually will.

It’s important to pick your finance package carefully. Don’t just go to one bank; instead use an independent finance broker who has access to a range of lenders and finance products.

3.       Being influenced by “The Market”

Don’t be influenced by “the market” more than by your own needs.

Sure the property market moves in cycles and there are times when they suit buyers and there are sellers markets when prices are booming. However, waiting for the “right time” or prices to go down is gambling with your family’s future.

At times the mixed messages in the media may confuse you and you’ll be tempted to put off the decision to buy. If you know your budget, have your finance organised and thought about your current and future needs, then you should rarely let short term market conditions influence what will be a long term lifestyle decision.

4. Going beyond your budget

Every homebuyer knows the feeling – you’re looking for a home that fits your budget, but that much more expensive property just looks that much more appealing. However buying a home that’s way out of your price range could well derail your finances in the future.

It’s human nature for us to want a little more than we can afford, and there’s always a real estate agent who’ll talk you to the next level

But don’t be tempted – the bank has usually offered you a borrowing limit for good reasons based on your ability to repay the loan. Spending more than you can sensibly afford leaves you exposed to potential financial shocks, including rises in interest rates. You must also allow for changes in your future circumstances.

5. Falling in love

If you think a house is ideal, don’t let the seller’s agents know. Agents are good at reading emotions and negotiating the last cent out of prospective purchasers.

A wise home buyer knows there’s lots of houses — and there’s one out there that’s the right house at the right price. If you can’t afford it, move on and keep looking.

6. It’s not all about price

We all know you make your money in property when you buy, but that doesn’t mean you must buy cheaply. You make your money by buying the right property not a cheap property.

Price is what you pay, value is what you get.

This means you don’t make your buying decision purely on price. You can always buy cheap properties in secondary locations or on main roads, but you’ll be stuck with a secondary property – not a good idea.

However, when you’ve found the right property – it’s important to make a proper offer. One that secures your home, but that does not overpay.

Don’t base your offer on the seller’s asking price. Instead, get a comparative market analysis from your buyers’ agent. This analysis will reveal recent asking and sales prices of similar homes in the neighborhood. With this type of knowledge, a wise home buyer can make an offer that is appropriate

7. Not having the right protection clauses inserted in the contract of sale.

Don’t sign anything until you are sure your interests are protected.

While the standard contract to purchase a property will give you a “3 day cooling off period” smart purchasers request additional clauses to protect their interests.

Don’t be fooled by an agent who says you can always ask for changes or an extension later. That’s not the way it works. The only way to get changes to a contract once it’s been signed is to end the existing contract and renegotiate a new one. And the seller doesn’t have to agree to your requests.

8. Underestimating the full costs of buying a home

Many homebuyers fail to budget for the full costs associated with buying a house. Firstly there’s the acquisition costs. Things like stamp duties, rates, valuation costs, loan application fees and mortgage insurance.

Apart from budgeting for moving costs, be prepared for the unexpected when you move into your new home. It’s funny how things that have been working for years seem to break down, as if they knew there was a new owner. Set aside a budget for those irritating and sometimes costly breakdowns.

Then…don’t underestimate the ongoing costs of owning your property. Owning can cost much more than renting with expenses like rates, insurance and maintenance.

9. The “Fed Up” Purchase

You’ve been looking for a few months but haven’t found your dream home. The agents are misleading you; you may have been out bid by someone who had deeper pockets than you. You’re Fed Up!

One big mistake home buyers make is to buy a property in desperation. They buy something reasonable rather than something that really suits their needs because they’re sick of the emotional rollercoaster of home buying.

This is a decision you may live to regret for a long time.

Rather than buying out of frustration, stop looking for a while, or better still get a buyers agent on your side to save you time, to look in nooks and crannies you wouldn’t have thought of and to find those silent sales for you – the off market properties.

For more information on buyers’ agents, read the article “The home buyers’ secret weapon.” 

10. Not organizing a professional building inspection

It’s important to engage a competent and independent (not one recommended by the selling agent) professional to check your potential new home.

Remember… these inspectors are trained to find faults, so don’t freak out when they produce a long list. Look out for major faults but don’t let minor faults that are easily repaired trouble you too much.

If you’re not sure how to interpret the report, have a chat with the building inspector and ask questions like – would you buy this property?

11. Misunderstanding the real estate agent’s role

Real estate agents are friendly people and in the course of shopping for a house, you will spend a lot of time with various agents. However, the wise home buyer understands who’s working for whom. Unless you have engaged an exclusive buyers’ agent, then the agents are working for the sellers.

Don’t be mistaken – a selling agent can’t work in the interests of both the buyer and the seller. In fact they’re legally and morally obliged to work for their client the seller.

However wise home buyers know how to level the playing field by engaging a buyers’ agent to represent their interests. For more information on buyers’ agents, read the article “The home buyers’ secret weapon.” 

12. Going Solo

The sellers have an agent protecting them, looking after their interests and advising them, but most home buyer’s go solo.

Sure you’ve read some articles and done your research on the Internet, but this is likely to be your largest purchase ever. And that emotions will cloud some of your decisions.

You wouldn’t go to court without a solicitor on your side – would you?

You probably have a good head on your shoulders and may even have a good working knowledge of the home buying process. What you probably don’ t have, however, is perspective.

If, how and when you buy a home are all decisions that will have major consequences. That’s why it’s important to have the same protection on your side that the seller has. That’s why it’s critical to engage a professional buyers’ agent to represent your interests.

For more information on buyers’ agents, read the article “The home buyers’ secret weapon.” Link to this new article

13.  Thinking this list is exhaustive

It’s not. There are many other issues to consider. But, hopefully, this will help you avoid a few common mistakes as you contemplate buying your next home.

via propertyupdate.com.au

A buyers’ agent or buyers’ advocate is the opposite of a selling agent, because they work for and are paid by the buyer. They are licensed real estate agents and their job is to work for you and protect your interests. They help you buy the right property for your needs, at the right price, on the right terms and with unbiased advice.

Why pay money for something you can do yourself?
Good question… We’ll give you 5 reasons a good buyers’ agent will help you;

• Their research saves you money – they know what’s really going on in the property market – after all they’re in it all day.
• Their skills reduce your stress. Buying a home or investment property can be about as nerve-racking as it gets. It’s emotional, exhausting and sometimes terribly discouraging. A buyers’ agent’s job is to make the process as hassle free as possible for you.
• Their experience saves you time – and this is one of your most precious assets. Using a buyers’ agent will give you back your weekends.
• Their industry knowledge levels the playing field – selling agents are not your friend, they represent their client – the seller.
• Their industry contacts widen your options – they have access to every property for sale and a good buyers’ agent even has access to silent – “off market sales” that you may never find out about.

Why doesn’t everybody use a buyers’ agent?

Actually, many people do, especially overseas. In Sydney, Melbourne and Brisbane the numbers are growing and we have seen estimates that up to 1 in 5 buyers now use an advocate or seek independent professional advice.

Why can’t a selling agent help me?

A selling agent must act in the best interests of their client – the seller. They do not, and should not, work for you – the buyer.  We know some agents would like to work for both sides and have it both ways, but when you think about it, they cannot possibly do both effectively as this would create a clear conflict of interest.

How do I find a good buyers’ agent

Not all buyers’ agents are the same. Here are some questions you could ask your buyers’ agent before engaging them:

1. Are you a fully licensed real estate agent?
Be wary of hiring someone who doesn’t hold a real estate licence and hasn’t had extensive experience in the property industry.

There are many people out there calling themselves a buyers’ agent or buyers’ advocate who are not licensed estate agents. Don’t risk putting what could be one of the largest purchases in your life in the hands of somebody who hasn’t had the years of experience necessary to negotiate on your behalf. Don’t be tempted to engage somebody just because they offer lower fees. If they can provide great service and add real value for their clients, they wouldn’t have to win new business by offering low fees.

2. Are you a member of the State Real Estate Institute?
This should give you the reassurance that they are operating to professional industry standards.

3. Do you have current professional indemnity insurance?
If something goes wrong with your property purchase you will have absolutely no recourse if this is not the case.

4. Are you a dedicated buyers’ agent?
Or are they just a division of a real estate agency or a one man band working from home or out of a post office box? They can’t offer a high standard of service when searching and negotiating for properties for their clients unless they are dedicated professionals focused on this process.

5. Do you specialize in the geographic location and the price range I am looking at?
If the buyers’ agent doesn’t have a strong recent track record of buying in the area you are looking at purchasing in, we suggest you don’t engage their services. Don’t be shy to ask them for the results of at least four recent purchases in the area you are looking at buying in.

6. Do you have access to “silent sales?”
Many properties that are sold never hit the public market. It is imperative that your buyers’ agent has years of personal relationships with all of the real estate agents in the area you are looking at purchasing in, so as soon as properties come up for sale you have access to these before they go to the general public.

What do I pay a buyers’ agent?

Generally buyers’ agents charge a registration fee between $1,000 and $2,000 and will then charge a success fee when they find the right property for you and successfully negotiate its purchase on your behalf. This can be a fixed fee, but it is usually a percentage of the final property purchase price.

Their fees should cover:

• All communications and meetings with you.
• Referrals to appropriate consultants such as finance, accounting and legal professionals if necessary.
• Property searching for a suitable property including communications and meetings with agents.
• Use of all their research databases.
• Evaluating properties to ensure they suit your criteria.
• Preparation of property reports to help you evaluate the properties they recommend to you.
• Communications with your finance broker, solicitor and accountant.
• Arranging further due diligence checks – including strata, building and pest inspections as required (you will be required to pay for these separately).
• Execution of strategies to purchase the property for you at the best price and then negotiating your property purchase.
• Checking final contracts.
• Pre settlement inspections.

If you are considering buying a home in the near future, why not employ this secret weapon

via propertyupdate.com.au

These are the thoughts of Westpac chief economist Bill Evans, one of the few economists who correctly predicted a rate cut in November.

“We would expect the unemployment rate to edge up to 5.75 over the next six months,” Mr Evans warned.

“But on the flipside, the Reserve Bank would have to cut the cash rate by at least half a per cent to counter (the job losses).”

The comments come as research firm CoreData suggested the number of unemployed people in Australia will jump by nearly 106,000 next year, assuming the labour force grows at its current rate and the unemployment rate rose to 5.75 per cent, as predicted.

CoreData boss Andrew Inwood was reported in news.com saying the problem would be felt nationwide.

“One in five Australians now think they are going to lose their jobs in the next 12 months,” Mr Inwood said.

Watch the latest market update video from Westpac chief economist Bill Evans.

Is he right?

Well…2012 will be a tough year for property, but before I answer the question I posed, I’d like to mention that I find it interesting that Professor Keen is only predicting a 10% drop.

In the past he saw houses prices falling 40%. He made a public statement and put his money where his mouth was selling his home in Sydney a few years ago just before prices boomed.

Keen, who was forced to take a hike up Mt Kosciuszko in 2010 after losing a bet that house prices would fall 40 per cent, recently forecast a drop of between 5 and 10 per cent next year because buyers would opt to pay off loans rather than take on more debt.

In an article in the Sydney Morning Herald experts were lining up to contradict the extremist property analyst Steve Keen’s prediction with most forecasting moderate growth.

Releasing the Australian Property Monitors‘ property market outlook, senior economist Andrew Wilson tipped 3 to 5 per cent growth in median house prices nationally and for Sydney.

Dr Wilson believes ”demand for housing will intensify”, pushing up prices.

Median house prices nationally had dropped 4.2 per cent over 2011, he said, and 1.6 per cent in the October quarter.

Of course we’ve had two interest arte drops recently, but concerns about the European economy are taking their toll, with most Australian’s preferring to stash their cash or pay down debt as they see how things play out overseas. Many potential property buyers are waiting to make sure house prices don’t fall further.

Looking ahead, Dr Wilson said that since Australia’s economic fundamentals were strong, the nation was well positioned to weather any downturn in international markets.

”This, coupled with renewed buyer confidence, will be the key to driving prices growth in the new year,” he said.

Brisbane and Perth to do well

He said that Brisbane, the worst performer this year with prices down almost 7 per cent mainly due to the devastating January floods, would bounce back between 5 and 10 per cent off the back of the resources boom.

Likewise, Perth and Darwin. But Melbourne, due to big price rises in 2009 and 2010 and an apartment oversupply, could expect growth of between 0 and 3 per cent.

Shane Oliver, the head of investment strategy and chief economist at AMP Capital Investors, also disagreed with Keen. ”Didn’t he forecast a 40 per cent drop a few years ago?” he joked.

However, Oliver isn’t as upbeat as the others, expecting a weak start to 2012 because of economic uncertainty. Over the year, he says prices could drop 1 or 2 per cent nationally but he is more optimistic about Sydney. ”I’m expecting modest gains over the year of maybe 1 or 2 per cent for Sydney,” he said.

via propertyupdate.com.au

Housing affordability has been in the headlines again, but this time around some seriously good research is the cause.

A new study for AHURI (Australian Housing and Urban Research Institute) strongly suggests that the traditional method of calculating housing affordability is out-dated and should be considered in conjunction with other ways of weighing up whether people can afford their mortgage or rent.

We have been banging on about this for close to a decade and this missive pulls together some of our thoughts on this matter.

The most commonly used benchmark to determine whether housing is affordable, is if it costs less than 30% of a household’s income.  However, few know that the 30% benchmark was established at the Government’s 1992 National Housing Strategy and was intended to apply to lower-income households only.  However, it is more often than not now quoted in reference to all households – even those on higher incomes.

Another point of contention is the source of the “household income” information.  Most commentary on this issue uses median weekly family income.  A family is defined as a married couple with or without dependent children.  Such a definition is quite prescriptive and precludes a large number of home buyers.  No consideration is given to age, for example, which provides a much better basis on which to analyse housing affordability.

Also contentious is that the income data is derived from the ABS Census and updated on the basis of movements in average weekly earnings.  We remain sceptical about certain elements of the Census and the income data concerns us the most.   One in eight households across Australia do not state their income on their census form; resulting, we believe, in a lower median household income than is really the case.

In our experience, using income figures sourced from the Australian Tax Office provides a more accurate picture.  And the statistics here don’t lie with median household income, across Queensland for example, being 21% higher when measured by the ATO against the Census.  In short, it is harder to lie to the ATO than it is to the statistical bureau.

Some better measures

The first one looks at income left over after debt servicing.  This approach paints a different picture to that obtained simply by calculating the proportion of income devoted to repayments.  Rising incomes have allowed households to meet rising loan repayments whilst maintaining, and often increasing, living standards.  Rising household incomes mean that the 30% traditional affordability benchmark is now out-dated.  In fact, given higher income levels now, households can devote as much as half of their income to debt servicing, whilst maintaining the same standard of living.  The AHURI study found similar results.

Another approach recognises the shortcomings of using median incomes of all households (or families) and instead considers the incomes of households in the age bracket of typical first-home buyers.  In this case, this relates to households in the 25 to 39 age bracket.  When looking at the proportion of residential sales by price range and taking into account interest rates and borrowing capacity, the typical first-home buyer could afford to buy one-third of the dwellings for sale across the country.  We estimate that this figure lifts to just under 40% for Queensland.  Now, while this is down on the long-term average of 45%, housing affordability measured by this series appears far less stressed than the traditional measures.

The big problem here is that first-home buyers these days want everything that opens and shuts in their first home.  A recent ABS study shows that three out of four first-home buyers bought either three or four-bedroom dwellings last year, with 26% buying a property with four or more bedrooms – as their first home!  It probably had fully ducted air, secured off-street parking and a swimming pool, too.

A third of first-home buyers are couples and another 25% live alone.

The last measure involves taking into account investment assets and income.  Ratios of household debt to assets have been much more stable over recent years than the ratios of debt to income.  It needs to be noted that traditional measures of affordability fail to take into account investment income.  When you do so, affordability measures appear far less stretched.

These three measures suggest that housing affordability is not as dire as many fear.  This is borne out by Australia’s very low housing loan arrears rate.  Whilst the housing loan arrears rate has risen over the five years, it still remains low by international comparison.

Anecdotal evidence also suggests that housing affordability is not as constrained as some would have us believe.  If you remain sceptical, spend a few hours in a major shopping centre and watch how many potential first-home buyers are spending up – and big.  Or visit your local airport on the weekend and see how many young couples are off for a weekend away.  The same applies when dining in some of our better restaurants.

Housing affordability is at nowhere near crisis level in this country.  Instead of the government giving ‘hand outs’ to first home buyers – which only lifts price – policy should address structural factors that lead to excessive housing demand and/or inadequate supply.  And please don’t get me started on the baby bonus!

In the meantime, some “plain speak” is needed.  Potential first-home buyers need to be told that buying your first property is not easy; it involves sacrifice and compromise to your current lifestyle.

To renters (and first-home buyers alike) paying 30% of your income for shelter is not outrageous.

via matusikmissive.wordpress.com