What’s really causing Australia’s housing affordability issue?

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Australia’s worsening housing affordability has been blamed on investors and foreign buyers but apparently this is not the case, according to a new report.

The Centre for Independent Studies report - which debunks what it describes as myths about housing affordability – says both foreign and domestic investors have been made scapegoats when it comes to housing affordability, but they are no more to blame for rising house prices than first-home buyers, report author Dr Stephen Kirchner said.

Rather government policies have increased demand for housing without tackling regulatory and tax barriers to new housing supply.

“Australia has enjoyed strong incomes, population growth and lower mortgage rates, and these, together with a critical lack of new housing supply, have fuelled long-term increases in real house prices.”

Kirchner said the problem is not too much demand, but too little supply.

The supply of new land for housing has declined over the last decade, by an average of 21% for the five major capital cities (Sydney, Melbourne, Brisbane, Adelaide and Perth).

This has pushed the price of land for new housing up by 148% to an average of $504 per square metre.

“Land supply and the intensity of land use need to be freed-up to accommodate rising demand,' Kirchner said.

“State and local governments need to relax their planning, development and zoning controls so new housing construction becomes more responsive to rising prices.”

While house prices have increased significantly since 1970, Kirchner said there was no reason to think rising house prices constituted an asset price “bubble”.

“The long-run trend in house prices is well-explained by economic fundamentals.”

Eight housing affordability myths
  1. Foreign investors are responsible for rising house prices
  2. Domestic investors / negative gearing / capital gains tax concessions are responsible for rising house prices
  3. The supply of land is fixed
  4. Lower interest rates make housing more affordable
  5. House prices are a speculative "bubble"
  6. Housing is an unproductive asset
  7. Australians invest too much in housing
  8. House prices are fuelled by a credit "bubble" / excessive leverage
Kirchner’s views back up some of those presented to the Inquiry into Foreign Investment in Residential Real Estate, as reported by Your Investment Property recently. [http://www.yourinvestmentpropertymag.com.au/news/skyrocketing-prices-what-is-really-to-blame-189308.aspx]

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  • Ecoengine says on 16/07/2014 08:23:15 AM

    Why does it take research by the Centre for Independent Studies to conclude the obvious! There's limits to available land for housing, and population growth has deliberately being boosted by immigration to keep the housing bubble inflated. There's too much demand, and not enough supply. Our economy needs more diversity. Property makes a few rich, but it's not boosting productivity - in fact it's probably stifling it! We have record youth unemployment, congested traffic, and a $700 billion infrastructure deficit.

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