The Housing Affordability Challenge

1. The Housing Affordability Challenge Judy Yates September 12th, 2007 Presentation based on results from AHURI NRV3 Final Report and associated Research Papers from research program on Housing Affordability for Lower Income Australians led by Judith Yates with Mike Berry, Terry Burke, Michelle Gabriel, Vivienne Milligan, Peter Phibbs, Simon Pinnegar and Bill Randolph. Reports available or forthcoming on AHURI website (www.ahuri.edu.au)

2. Outline • 1. What’s the problem? • 2. How did it come about? • 3. What can we do about it?

3. What’s the problem? • At individual/household level • increasing costs of access to home ownership • large numbers in mortgage stress • declining home ownership rates amongst young • large numbers in housing stress in private rental • significant homelessness • At economy wide level • spatial segregation • labour market inefficiencies • intra and intergenerational inequities • potential macroeconomic instability

4. Income and house price trends Australia 1960 - 2005 Source: NRV3, FR

5. HIA Affordability index:repayment to income ratio measure Source: HIA-CBA Affordability Report, various years

6. Declining access to home purchase:deposit gap/income (AWE) ratio Source: NRV3, FR; NRV3 RP11

7. Implications: age specific HO rates Source: census data, special tables

8. Key message 1 • Housing affordability problems are structural • began 30-40 years ago (when inflation switched focus on housing from providing shelter security to providing wealth security) • exacerbated by changes in CGT (in 1986 favouring owner-occupiers; in 1999 favouring investors)

9. What’s the problem? • Housing serves a dual role • Consumption – provides shelter • Investment – provides wealth • Affordability problems arise because • Role as asset for wealthy crowds out • Role of shelter for less well off

10. Housing stress Lower income private renters Lower income purchasers Moderate income private renters Moderate income purchasers Source: NRV3, FR

11. Key message 2 • Housing affordability problems are greater for renters than for purchasers

12. What’s the problem? • At individual/household level • increasing costs of access to home ownership • increasing mortgage stress • declining home ownership rates amongst young • large numbers in housing stress in private rental • significant homelessness • At economy wide level • spatial segregation • labour market inefficiencies • intra and intergenerational inequities • potential macroeconomic instability

13. Change in low income private renters: Sydney, 1991 to 2001 Segregation Source: Randolph and Holloway (2007)

14. Segregation Change in low income private renters: Melbourne, 1991 to 2001 Source: Randolph and Holloway (2007)

15. Inefficiency Source: NRV3, RP5

16. Inequality Source: NRV3, RP10

17. Inequality Owner-occupiers Others Source: NRV3, RP10

18. Instability Source: NRV3, RP4

19. How did it come about? • From demand pressures • increasing number of households (population growth + decreasing household size) • increasing incomes • increased availability of mortgage finance • increasing wealth assisted by lack of capital gains taxes on owner-occupied housing • spatial concentration of demand (in urban and coastal regions)

20. How did it come about? • On supply side • increasing cost of land • time taken for release of new land • move to user pays for infrastructure financing • increasing scarcity value well located land • displacement of FHBs by rental investors (encouraged by taxation incentives) • reduced supply of affordable private rental housing • declining supply of social housing

21. Dwelling price gradients, 1992 to 2002 Sydney Melbourne Source: PC (2004)

22. Change in no. dwellings by size: 2001 to 2006 Source: 2001,06 census tables (20680-x49, i20)

23. Distribution of private rents, 1996, 2001, 2006 Source: 2006 census tables (20680-t18), CPI adjusted

24. Key message 3 • Many established home owning households have benefited significantly from increases in house prices • through increases in value of owner-occupied housing and • through increases in value of rental housing • Demand for well-located housing from established and well-off owners has fuelled affordability problem for newly formed and renter households

25. What can we do about it? • 1. Make investment by wealthy less desirable by reducing scarcity of desirable land • Increase supply desirable land (infrastructure, transport etc) • Reduce desirability of scarce land (decrease tax incentives for owning land; increase density)

26. What can we do about it? • 2. Increase housing available for shelter (and investment) for low to moderate income households • Increase supply affordable rental housing • Help marginal purchasers stay in their homes

27. Specific policy ideas? • 1. Develop a national affordable housing strategy • 2. Better targeting of housing assistance to low and moderate income households • 3. Strategic use of infrastructure investment

28. References • Berry, M. (2006) Housing affordability and the economy: A review of macroeconomic impacts and policy issues, NRV3 Research Paper 4, AHURI • Berry, M. (2006) Housing affordability and the economy: A review of the labour markets impacts and policy issues, NRV3 Research Paper 5, AHURI. • HIA-CBA (various years) Affordability Report (courtesy HIA) • Productivity Commission (PC)(2004) First Home Ownership, www.pc.gov.au • Randolph, B. and Holloway, D. (2007) Commonwealth Rent Assistance and the spatial concentration of low income households in metropolitan Australia, AHURI Final Report No. 101. • Yates, J. (2007) Affordability and access to home ownership: past and present, NRV3 Research Paper 10, AHURI forthcoming. • Yates, J. et al (2007) Sustaining Fair Shares: The Australian Housing System and Intergenerational Sustainability, NRV3 Research Paper 11, AHURI forthcoming. • Yates, J. and Milligan, V. (2007) Housing Affordability: A 21st Century Problem, Final Report, National Research Venture 3: Housing Affordability for Lower Income Australians, AHURI forthcoming.