By HELEN HULL
Australians are struggling more than ever to secure their dream homes as prices skyrocket and supply becomes tighter than ever before. Here, the Journal asked experts to share their views on the challenges surrounding housing affordability and provide some potential solutions to the escalating crisis.
REINSW CEO Tim McKibbin said that the housing affordability crisis is caused by a lack of supply – and it’s set to worsen.
“In New South Wales, we need to build around 45,000 properties each year to meet demand, however we’re currently achieving less than half of what is required,” Mr McKibbin explained.
“We know that a 10 per cent increase in supply will result in a 25 per cent improvement in affordability. But what we’ve seen from a variety of government initiatives amounts to simply working around the problem or popular politics – and neither has worked.”
Nerida Conisbee, Chief Economist at Ray White, said that housing supply is the key issue, because supply has not kept up with population growth, town planning is difficult in many areas and it’s hard to find homes in the places people want to live in.
“There are 400,000 additional people who arrived in Australia over the last 12 months, and this has placed increased pressure on housing,” she noted. “A clear solution is to make higher-density options available, but it’s hard to tackle NIMBYism. Many cities around the world have high-density areas, but here we are largely adverse to it.
“We also have a construction crisis and it’s expensive to build,” she added. “And people are just not downsizing. There are many homes with only two people living in them that have two, three or more spare bedrooms. People are clinging to their family-sized homes, because it’s not tax effective to sell them.
“This is why we’re not seeing enough sales in the more expensive end of the market. Changes to taxation would certainly contribute to both availability and affordability.”
Mr McKibbin agreed and said that he believes that all levels of government have become addicted to property taxes.
The overwhelming majority of first home buyers were not even born when stamp duty rates were last amended in 1986.
“At the time, it was said in Parliament that people need not worry about the higher rates of tax, because they would only apply to ‘expensive properties’ over $300,000. This in no way reflects today’s property prices. By not amending stamp duty brackets since 1986, successive NSW Governments have collected tax from property consumers far in excess of what the 1986 rates of tax were designed for. The decision to not amend the rates of tax in keeping with the market is nothing less than unconscionable.”
Mr McKibbin added that all three levels of government – federal, state and local – have contributed to the supply problem and it will require a collective effort from them to solve the problem.
“I find it disingenuous when government talks about affordability, but acts with tax,” he said. “The Federal Government charges GST on new property sales. The NSW Government charges stamp duty when the developer buys the property, land tax while the homes are being built and the consumer pays stamp duty when they buy the home. The local government then levies taxes and charges as part of the development approval and council rates, while the developer holds the property. When you add that all up, it exceeds 40 per cent of the purchase price.
“We need to broaden the tax base. Property is shouldering a disproportionate share of the tax burden across the country. Consumers are making transactional decisions based on the tax payable. Taxation should be a consequence of a transaction, rather than one of the matters a person considers when deciding to buy or sell property.
We know that a 10 per cent increase in supply will result in a 25 per cent improvement in affordability. But what we’ve seen from a variety of government initiatives amounts to simply working around the problem or popular politics – and neither has worked.
–
Tim McKibbin
REINSW
Local councils inhibiting supply
Mr McKibbin believes that the biggest inhibitor to supply is local councils.
“What a consent authority in other states can do in a matter of weeks takes councils in New South Wales years,” he said. “This adds costs that are passed down the line to the purchaser of the property.”
Mr McKibbin explained that it regularly takes longer for a council to say ‘yes’ to a development than it takes to actually build it.
“There is something fundamentally wrong with this and it’s totally unacceptable,” he said. “Local councils should be monitored by the NSW Government; if they can’t make efficient, timely and good planning decisions, then the planning power should be removed from them and vested with the NSW Government.”
Additionally, he said we should be rewarding councils that perform appropriately.
“If an application ends up at the NSW Land and Environment Court, we should look to see if it was appropriate for council to refuse it,” he said.
Agreeing with Mr McKibbin, Ms Conisbee said there are solutions to the supply problem.
“We need to streamline planning for homes, give incentives to get developments up and running, allow for higher densities, and make sure that challenges and objections are addressed quickly,” she said.
“People don’t like high rise or high density because the infrastructure does not support it, so making sure there is enough parking at schools and hospitals to accommodate growth is essential, as is, to a lesser extent, allowing development of greenfield sites and more urban sprawl.”
Ms Conisbee said one idea is for government to throw money at the problem, but that’s easier said than done.
“First home buyers love a home building grant, but the Productivity Commission has found that while grants are quick and easy, they ultimately make property less affordable and don’t have a positive impact. We simply need to ensure enough homes are being built for the increasing population to live in.”
Global problem
Ms Conisbee recognised that housing affordability is a problem everywhere.
“We tend to think of affordability as an Australian problem, but it’s not,” she said. “It’s a global problem and one that no one seems to adequately address”
The recently released Demographia International Housing Affordability report found that for the first time in its 19-year history, none of the 94 major markets across the world were affordable. Australia was ranked number two for the second year in a row, behind Hong Kong and ahead of third-placed Vancouver.
“The areas where housing affordability is not so much of a problem are places that are seeing population decline. If you look at Japan, its population is shrinking overall, but Tokyo has affordability issues.”
We need to streamline planning for homes, give incentives to get developments up and running, allow for higher densities, and make sure that challenges and objections are addressed quickly.
– Nerida Conisbee
Ray White
Worse than during COVID times
Thomas McGlynn, Chief Executive Officer at BresicWhitney, said we’re worse off today regarding affordability than we were in the midst of the COVID market.
“Due to rising interest rates, the costs associated with buying a property and maintaining a mortgage have gone up and, with rises in goods and services, it costs a lot more for people to run their everyday lives,” he said. “There is tension on the ground and people are feeling the pinch with their finances to be able to afford property.”
According to Mr McGlynn, there is a big divide between the people who own property and those who don’t.
“If you’ve been a home owner for the last 10 years or more, affordability may not be so much of an issue, because you’ve experienced the benefits of being in the market,” he said. “However, for many of those who entered the market in the last 12 months or are still looking at entering, affordability is a real issue.”
As a result of the boom, Mr McKibbin said there has also been a rise in the ‘bank of mum and dad’ and a change in the demographics of first home buyers.
“In the Sydney metropolitan area in particular, we’ve seen parents helping their first home buyer children to enter the market – but not everyone has this luxury,” he said.
“When you think of first home buyers, you tend to think of someone as being young. However, across large parts of New South Wales, and in particular Sydney, first home buyers are no longer young people. Rather, they are often people in their 30s and 40s.”
People are expanding the areas that they are looking to move to, and more rural and regional areas are becoming popular. They are also accepting that they’ll have to buy a smaller home or purchase with a friend or relative.
– Cathy Baker
Belle Property
Seeking alternatives
Cathy Baker, Principal at Belle Property Killcare, said the housing affordability crisis is having a huge effect on where people are buying and the approach they are taking to their home search.
“People are expanding the areas that they are looking to move to, and more rural and regional areas are becoming popular,” she said. “They are also accepting that they’ll have to buy a smaller home or purchase with a friend or relative.”
Ms Baker believes that the future will see a rise in shared-purchase models, where the property can accommodate extended families living together in the one home.
“It is also becoming more popular for people to buy lifestyle properties. This includes having a granny flat you can rent out to help pay the mortgage.”
While it’s going to be very difficult to fix the housing affordability crisis, we can make the experience less stressful and less costly. It’s important to ask yourself if you are making it easier for a buyer to deal with you as an agent and if you are making it easy to find the information they need.
– Thomas McGlynn
BresicWhitney
Role of real estate professionals
Housing affordability can be a challenging topic and, according to Mr McGlynn, it’s important for agents to be understanding of what their clients are dealing with and the pressures they may be facing.
“More and more, we need to be sympathetic to those who are buying and selling,” he said. “It can be a very stressful experience and some people have had it very tough. We can’t be flippant with the way we are with our clients. We should always provide six-star service.”
He added that transacting property can be a fairly stressful experience, especially with the rising cost of living.
“If someone keeps being outbid and missing out on properties, it does create a stressful environment,” he said. “As an agent, you need to understand that you have to walk a mile in their shoes to see how you can be servicing them the best way you can.
“While it’s going to be very difficult to fix the housing affordability crisis, we can make the experience less stressful and less costly. It’s important to ask yourself if you are making it easier for a buyer to deal with you as an agent and if you are making it easy to find the information they need. For example, if someone misses out on 10 properties that they bought pest and building reports for, it’s costing them a lot.
“This is something we don’t talk about enough in the industry. We should be looking at these sorts of things in an attempt to make it easier for buyers.”