What will the future housing market hold for today’s young people? Two things are certain: we can no longer rely on the past in making predictions about housing affordability; and we cannot afford to sit back and leave it to the market.
A non-government forum on housing affordability - hosted last week by the Housing Industry Association, Australian Council of Social Service, Australian Council of Trade Unions and National Housing Alliance - has found that governments can and should take action to improve the prospects for young home buyers.
The forum, as with so many before it, identified issues across the spectrum of housing sectors - purchase, private rental, public and community housing. And there was a consensus that we need to be doing more across all sectors to ensure that all Australians can afford to live in a decent home.
What’s more, participants concluded that the only way to make real progress towards this goal was with a national approach. To be clear, this does not mean the Federal Government doing it all, but it certainly needs to be involved - as do the states and territories, local governments, industry and the business community, and the not-for-profit sector.
The key aim is to make the best possible use of (increased) public resources under a new National Affordable Housing Agreement, which would replace the existing Commonwealth State Housing Agreement and expand the focus significantly beyond so-called “welfare housing”. In particular, the expanded focus would take in the private rental market and home ownership.
Why is this important? Let’s take a hypothetical young couple and have a look.
Gemma and Sam are both aged 27. They plan to marry and start a family within the next couple of years. In the past, couples like this would have bought their first home at roughly the same time as these other major life events.
But will they be able to go down the path taken by their older siblings, just a few years ago? With median house prices having risen from just over three times average income in the mid-1990s to around five and a half times average income today, they could be in trouble.
Gemma and Sam currently rent a home in the inner suburbs of Melbourne. There is no way they could afford to buy a house anywhere near as close to the city as they now live. They will have to choose between staying close to work and continuing to rent, buying a flat or unit in the inner suburbs, or moving to a house with a backyard on the urban fringe. So far, this is a similar choice to that faced by their parents and siblings.
However, a major new factor in their thinking will be the skyrocketing price of oil. Many predict that we are close to peak oil production and petrol at the bowser will soon double in cost. Certainly, there is no expectation that its cost will go down. This makes the option of a cheaper home on the city fringe look somewhat less attractive. What is saved on the mortgage, and possibly more, will go straight into the tank.
Gemma and Sam may be pleased to find that a renovated home unit in the outer suburb of Greensborough is within their price range, as well as being close to the railway station. They figure that buying is better than renting because the rental market remains tight all over the city. And they realise that, despite the huge increases in house prices over recent years, there is little prospect of the significant falls that have followed previous booms. After all, new home building is not even keeping pace with underlying demand. They’d better get in quick before prices go up again.
Let’s assume our young people are tertiary-educated professionals. So long as interest rates remain reasonably steady, they can afford the repayments on a $250,000 bank loan. Gemma’s parents - well-educated baby boomers - have inherited family wealth and they decide to help the couple with a deposit. Sam and Gemma are lucky indeed: they are well on the way to owning their own home, albeit a modest one. Careful financial planning will allow Gemma to leave the workforce for a year when their first child is born.
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