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'The priorities of today’s home owners have change substantially from previous generations'.

We all know that housing affordability in Australia is an issue, with multiple solutionsoffered up to solve the problem.

Is the answer as simple as creating more affordable housing options? Should we remove stamp duty completely? Allow first home buyers access to their super for a deposit? All of these ideas have been offered as solutions, however, are our own expectations the key to finding an answer to the problem?

What is affordable housing?

It would be a good start to understand what we mean when we talk about affordable housing. Well, the definition really depends on who you’re speaking to, or as Professor Richard Reed, Chair of Property and Real Estate at Deakin University’s Business School explains; ‘affordable housing applies to different cohorts in varying ways.’

‘Most often the reference to affordable housing is made in relation to newly formed households and their ability to purchase housing, rather than rent. However, it also applies to households which are seeking any kind of shelter, often referred to as homeless; those who rely on not-for-profit housing providers as well as seniors who often struggle to maintain affordable housing as they retire with no income and little superannuation,’ Prof Reed says.

Lower expectations

According to Prof Reed, if people buying homes lowered their expectations so that they better aligned with their bank balances, housing in Australia could be more affordable.

‘The priorities of many of today’s home owners and renters have change substantially from previous generations who were willing to make large sacrifices and also didn’t have additional financial pressure on their disposable income,’ Prof Reed says.

He further explains that ‘this is evident in the strong demand for new four bedroom houses and resistance for the smaller two bedroom houses of yesteryear, even though today’s families are much smaller with few or no children.’

According to the Australian Institute of Family Studies, the average household size has dropped from 3.6 in 1960, to 2.6 today. This lowering of the typical Australian household, should be reflected in the decision making of current property hunters, however the fact that it’s not, is contributing to the current affordability crisis we face.

New pressures

We live in a digital age, and there is now increasing pressure from your professional or social life to always be ‘connected’.  With that comes increasing costs that previous home buyers didn’t have to deal with.

‘New financial pressures such as mobile phones and IT costs were not part of life for previous generations. These additional expenses, and reluctance to make lifestyle changes, leave less in the household budget to allocate to housing,’ Prof Reed says.

While these costs are often unavoidable for the younger generations, it pays to be smart with your choices, as they can be the difference between owning a home or notHunting for the right long-term deals for necessary expenses like mobile phones and internet providers can often save you hundreds of dollars a year, and enable you to save more money to put towards housing.

What are the options?

Prof Reed is sceptical that government intervention holds the key to the housing affordability issue.

The property market has the largest amount of political intervention of any marketplace however this has shown to be ineffective over the long term,’ Professor Reed said.

He continues ‘changes to stamp duty, for example, will not have a positive effect as the winners will be property developers and builders who will benefit from higher demand for larger houses.  The removal of the stamp duty cost will also encourage households to borrow more money for larger houses as they can now afford it.’

Professor Reed suggested the most important change would be to educate households about the benefits of housing ownership and how it could become affordable to most households.

‘We now live in a credit society where it is acceptable to borrow large amounts of money,’ he said.

‘This might be manageable with the present record low interest rates however the cyclical nature of the market will ensure that interest rates will rise.   We are currently in an upward cycle so housing affordability will only decrease over time,’ Prof Reed says.

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Originally published on this.