Housing in Australia could be more affordable if people’s expectations better aligned with their bank balances, according to a Deakin University real estate expert.
Professor Richard Reed, Chair of Property and Real Estate with the Deakin Business School, said the provision of affordable housing was only part of the equation when looking to address the housing challenges faced by many Australians.
“We need to look at a household’s ability to pay for housing, either owning or renting,” Professor Reed said.
“The priorities of many of today’s home owners and renters have changed substantially from previous generations who were willing to make sacrifices and also didn’t have additional financial pressure on their disposable income.
“Due largely to peer pressure and marketing, these days there is a preference for a new larger home rather than a smaller ‘starter home’ to commence on the housing ladder.
“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.
“Today’s households are not willing to sacrifice. They spend substantial money on eating out, travel and the purchase of a new tablet or wide-screen TV rather than saving for a housing deposit.
“They also have new financial pressures such as mobile phones and IT costs that 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.”
Professor Reed said he recognised that what made housing affordable depended on the circumstances.
“Affordable housing applies to different cohorts in varying ways,” he explained.
“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.”
Professor Reed was not optimistic that the initiatives being proposed by state and federal governments would make a substantial difference to housing affordability.
“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.
“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 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 become harder.”
Originally published on Deakin Media.