More Australians face housing stress

David Taylor, On Tuesday 25 October 2011, 17:50 EST

Previously unreleased documents from the Reserve Bank show that a significant proportion of Australians are under serious financial stress because of their mortgage.
First-home buyers who indulged in the borrowing binge inspired by the Federal Government first-home owners' grant in 2008 are under the most strain.
A separate report shows that an inflated property market has left around one in 10 Australians facing poverty.
The early part of last decade saw the beginnings of a once-in-a-generation mining boom.
Investors also were riding high on a share market that could do no wrong.
As a result, many Australians decided to take out a mortgage between 2004 and 2007, confident they were financially secure.
This fuelled a big jump in house prices, creating what some have described as a housing bubble.
Steve Keen, Associate Professor of economics and finance at the University of Western Sydney, says the jump in house prices created "one of the biggest housing bubbles on the planet".
Reserve Bank documents show that group of borrowers is now sinking in debt.
First-home buyers also are feeling the squeeze.
Almost a quarter of first-home buyers in Melbourne, and 15 per cent of Sydney home owners, are now dealing with financial stress.
Those borrowers flooded into the market in 2009 when the first-home owners' grant doubled to $14,000.
"These people are going to be dragged into too much debt," Mr Keen said.
"At the top of the bubble they'll be the sacrificial lambs of a temporary recovery caused by restarting the housing bubble, and when it all comes down they'll be enemies of the people who brought the policy and got them into the debt in the first place." Keeping pace House prices in Australia have been growing steadily now for the past 15 years, but the income of everyday Australians has not kept up.
Figures from RP Data show the average Australian income is now between $55,000 and $60,000, but a typical house is worth around $450,000.
With the cost of living included, this means the median dwelling price is around 6.5 times disposable income for households, more than double what is considered affordable.
Principal research fellow at the National Centre for Social and Economic Modelling, Ben Phillips, says this has created stress for borrowers and renters alike.
"What we're seeing here, particularly for the renters, is that they are spending a lot of money on housing," Mr Phillips said.
"So it means that there's less money left over for all the other items they may be wish to spend their money on.
The problem is straight forward; there simply aren't enough houses and apartments being built to accommodate the expanding population, forcing prices higher, says Mr Phillips.
Incentives It is not just simply a matter of building a new house; infrastructure and incentives for developers to create the necessary facilities also are required, says Macquarie Group senior economist Brian Redican.
"You really need the roads, the hospitals, the schools and the other transport infrastructure to be put in place," he said.
We also need to see an urgent pick-up in the willingness of developers to break more ground, but that might not be far off.
"Somewhere down the track we should see higher levels of housing construction," Mr Redican said.
"That will increase the supply of housing and should make it more affordable for more households." More affordable, maybe, but there is still no mention of a major housing downturn.
"I think the most likely scenario is small house price declines, similar to what we've had in the last 12 months, so where prices are sort of probably down 3 to 5 per cent," Mr Redican said.

47 comments

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DJ Jones 1 hour ago Report Abuse
Everyone goes through a stage like this when buying their first home. The trick is to hang on and see it through. After about five years wages and house prices will rise and the debt will seem less and easier to pay off. This is nothing new. The journalists just want to make it seem like a new era.
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John Smith 1 hour ago Report Abuse
Unless you earn over $100k per year, forget about purchasing a home.
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John Smith 1 hour ago Report Abuse
There have been delays of many years from demolition before local council, State government, court system and businesses have agreed on what to do with the new land development. All vested parties must be happy before land development can proceed.
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PhilK 2 hours ago Report Abuse
The market finds its own level, if there is a lack of houses people will pay more to get a place or miss out, if there is also a large number of overseas buyers and people looking for investments then that means more competition for the same slice of pie.
There is only two ways to lower the cost of housing 1/ take out some of the people trying to purchase (i.e overseas buyers and or the negative geared investors) 2/ build enough houses that there is a glut.
In Las Vegas people had nice expensive homes worth a lot of money, then the Vegas government released a ton of land and suddenly there was more houses than was needed, residential prices fell like a lead balloon!
State governments releasing land should also stipulate that construction must begin within 1 to 2 years or a penalty applies for each month there after, many developers sit on land or dribble it out until it goes up in value then they build and make a higher profit.
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dustin p 2 hours ago Report Abuse
Julia is now giving advice to the Europian banks and govment leaders , unbelievable .
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John Smith 2 hours ago Report Abuse
Just blame it all on the Unions and Labor and do nothing. That it what the great John Howard would do.
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PhilK 2 hours ago Report Abuse
Much of the available land and housing is snapped up by non Australian residents overseas, (the Chinese, Singapore and Hong Kong people have significant stakes in Australia) they see purchasing land here as a good cheap investment and rental returns as above the average.
Time the government changed things to discourage such practices.
Another option would be a move to have significantly higher taxes placed on properties owned by non people who are not Australian citizens or perminant residents here.
Combine these with a phase out negative gearing and there will be a decline in housing prices, which will help keep inflation down.
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John Smith 2 hours ago Report Abuse
Housing is a non-productive asset after it has been built and sits there being used by owner or maybe rented out.
Time to bring in a tax that hits the family house. The family house should no longer be regarded as the untouchable sacred cow.
Cheaper and more cost effective methods of building housing are available besides the bricks and mortar. It takes around 18 months to 24 months from purchase of land package to completion of home in WA.

Tradies can charge as much as they want and well the same guy who installs your air condition or copper pipes. A rogue tradie could come along and steal it from the building site in the middle of the night.

Tents, your car, park benches, the office and caves make far cheaper accommodation than expensive housing. Renting is so much cheaper than buying a house now. Stuff trying join a public housing list and be a bum.
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A Yahoo!7 User 3 hours ago Report Abuse
Yes, Aristeus the banks do owe me a living as I have sizeable deposits with them and property too. Good Economists live in a world of scarce resources, having managed mine well and owning property I can say that it is called the dismal science. That's true, so in effect you have victims deciding your economic future. We tend to not look at the short term but ask basic questions like what is the opportunity cost (where the money could be spent more usefully) of money inflating assets artificially?
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John Smith 3 hours ago Report Abuse
Scrap the first home owners grant. Increase rates and allow house prices to fall down to realistic values. The future of this country is in peril due to blunders made by State and Federal policy decision makers.
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Tuesday, 25 October 2011