What can be done about Housing Affordability?

What can be done about Housing Affordability. The Federal Treasurer Scott Morrison recently called on states and territories to remove unnecessary land planning regulations, to increase the supply of housing.  As he sees this as a way to improve the issue of Housing Affordability.

But how big an issue is the rising price of housing?  The answer probably depends on a persons situation and whether they are currently invested in the property market (via their home or and investment property), or if they are yet to enter the market.

Those with the biggest concern are those folk that do not own a home or are saving to buy their first home.  With prices continuing to rise (sometimes at a rapid rate), it is becoming very difficult to just to get the necessary deposit together to apply for a loan, and then the amount that is required to be borrowed is increased as well.

It is becoming more common for parents to help out their adult children in a couple of ways.  Firstly by allowing them to live at home (often with no or low rent) much longer than previously.  This can help them to save for the deposit. The second way is with a direct cash injection.  This cash injection may however be impacting on the quality of retirement that the parents will be able to lead. What can be done about Housing Affordability.

So what did Mr Morrison have to say?

In a speech to the Urban Development Institute of Australia, to address the issue of booming house prices in Australia, Mr Morrison conceded the housing market was “getting away from people”.

“No matter how hard they work or save or even earn, they are finding it harder and harder to get into the market,” he said.

“Housing in Australia, especially in Sydney, Melbourne and Brisbane, is expensive and increasingly unaffordable, but that does not mean it is overvalued.

“Improving housing affordability right across the housing spectrum must therefore be a key policy goal for Governments at all levels, including the Commonwealth.”

Mr Morrison flagged the Coalition’s intention to target state planning regulations.

“The Government will … be discussing with the states the potential to remove residential land use planning regulations that unnecessarily impede housing supply and are not in the broader public interest,” he said. What can be done about Housing Affordability.

“This will be the strong focus of my discussions at the next Council on Federal Financial Relations that I will convene in early December.”

He pointed to “supply-side” constraints preventing people from owning a house, including “complex land planning and development regulation; insufficient land release; the planning, cost and availability of infrastructure provision; transaction and betterment taxes, public attitudes towards urban infill; and, for Sydney in particular, physical geographic constraints”.

State governments could do a “great deal to improve planning processes and the provision of infrastructure”, Mr Morrison said.

Predictably the opposition party came out firing as well.

But Labor’s finance spokesman Jim Chalmers said the Government was ignoring the way negative gearing had warped the market.

Mr Chalmers told the ABC that while land supply needed to be addressed, “it’s not the most important issue”.

“The most important issue is levelling the playing field between investors who might have six or seven properties and people who are trying to get into the housing market for the first time,” he said.

But which one is right?

I am not sure that either is correct.  If the State government allowed for a greater supply of land onto the market, Morrison argues that prices will go down, but this is simplified thinking.  If prices fall then the profit will not be there for the developers, who will stop developing new land, until prices rise to a more profitable level.  We saw after the GFC that there was plenty of land available but no buyers so prices did fall until the available land was sold.  However the developers did not develop and new land as they were afraid that they could not sell the new developments. What can be done about Housing Affordability.

It was only when the market in the South East corner turned in 2013 that developers started to again carve up new blocks, just as prices started rising.

The problem of unaffordable housing is a complex one with lots of contributing factors, lets just hope that all sides of politics put the ideology aside long enough to come up with some solutions.  We would love to hear for you about your suggestions.

Hicks Real Estate team is available to call today on: 07 3355 6845.