POPULATION pressures and record prices are derailing the dreams of frustrated first home buyers.
Last Monday, research from Bob Birrell and Colin Keane indicated that first home buyers were being priced out of the last bastion of affordable housing, new estates on the city’s fringes.
That was followed by Friday’s revelations that Melbourne’s population has soared by more than 600,000 in the last nine years.
Most of those new arrivals decided to live, not surprisingly, in the outer fringe suburbs where first home buyer affordability has become a critical issue.
They’re troubling statistics for young people wanting to get a start in the housing market, particularly with fat government grants a distant memory and prices at record highs.
Added to this, the size of the average first-home loan is near an all-time high of $279,300 and, according to the Real Estate Institute of Victoria, Melbourne’s median house price rose 15.2 per cent to $547,000 in the year to February.
And just to illustrate how difficult things have become, the number of loans issued to first home buyers in January this year was just 1676, the lowest level in seven years, and well down from the heady days of May 2009, when 4500 loans flooded the market.
Sliding affordability has social consequences, and not just for the less well-off first home buyers.
People are more likely to delay buying a home until later in life, their 30s or 40s, when they can get a secure, higher-paying job.
That, in turn, will have an impact on the time it takes to pay off the mortgage, leaving some with a debt legacy to be carried over into retirement.
Faced with rising mortgage lending rates, high house prices and decreasing affordability in the outer suburbs, the chance for less well-off buyers to get into the market are fast diminishing.
And there appears to be no quick or easy solution.
Keane and Birrell rightly point out that unprecedented demand is behind the inability of Melbourne’s new developments to deliver affordable housing.
Over the past nine years, Melbourne, and particularly its outer suburbs, grew faster than any other place in Australia. The city’s population boom saw an extra 605,411 people – half the population of Adelaide – settle mainly on the fringes, where the battle over affordability has hit hardest.
As the city’s population surged above 4 million, demand shot through the roof and land procurement and planning processes were unable to keep pace. As a consequence, Kain and Birrell say the property development industry has also lost the capacity to play catch-up.
No other city in Australia has witnessed such growth or had to deal with the corresponding pressure such rapid expansion puts on infrastructure and services, with congested roads, crowded public transport, schools and hospitals.
One solution is to further reduce the population intake. Melbourne’s net population is estimated to have actually fallen by 17,000 in the year to June 2010 from the previous year’s high of 96,000. Nonetheless, that still equates to a jump of 1500 people a week over the year.
More people generate greater demand for jobs, housing, goods and services and contribute significantly to the economy. This helped create Victoria’s recent economic success.
But has it gone too far? Expect to hear more from Dick Smith on the evils of Australia’s addiction to economic and population growth in coming months.
Little wonder, also, that frustrated Gen Y first home buyers are joining a ”buyers’ strike”.
Tax-reform group Prosper Australia has ignited a small but growing online social media campaign against the high cost of housing, urging prospective home owners to sign a pledge not to buy. Over the past two weeks, thousands voted online in support, pushing the campaign to the top of political activist website GetUp’s campaign ideas list.
But their efforts to generate a wholesale hit on prices may hurt more than it helps.
The Economist, among other commentators, has been vocal about Australia’s unsustainable house prices but it has also documented the other side of the equation, the aftermath of the housing crash in the US.
Gambling mecca Las Vegas has many dubious distinctions, The Economist says, but it recently added one: the US foreclosure capital. In the city’s poorer suburbs, one in five homes is in some stage of foreclosure.
People who have managed to hold on to their homes are far from lucky either, the magazine says. Property prices are around 60 per cent below the peak they reached in 2006, leaving 70 per cent of home owners owing more on their mortgage than their property is worth.
These grim statistics have a knock-on effect: local government revenue and services are constricted, construction has shrivelled and people forced out of their homes are moving away from families and friends, leaving them isolated and depressed.
Back in Australia what is being done to avoid all this?
On a federal level, not much. That inaction is epitomised by Labor’s much-publicised National Housing Supply Council. Soon after delivering its landmark report on housing supply and affordability last year, it was whittled away to only one member, it’s chairman Owen Donald.
Things are better at state level. The Baillieu government confirmed it will not back away from stamp duty cuts for first home buyers but will roll them out mid-year as promised. In the first year, this translates to a 20 per cent saving of $3274 for the average first home buyer spending $400,000 on a house. In subsequent years, it will rise to 50 per cent.
And the more dubious – but favoured – government policy of first home buyer grants, will continue into the next financial year. This can put up to $26,500 (depending on your circumstances) in the pocket of a first home buyer, or, depending on who you listen to, the price for the vendor.
Less favourably, scrapping the urban densification policy along rail and road corridors has not helped increase the supply of housing.
With affordability at breaking point and deep structural problems confronting the housing market, maybe it’s time to take first home buyers’ concerns more seriously.
Story by Simon Johanson www.smh.com.au
Tags: economy, mortgage, property, real estate, value