With first home buyers representing around 13% of new lending, there are some specific issues to be considered when it comes to the affordability debate.

Firstly, the capital cities of Sydney and Melbourne are home to more than 8.4 million people and are therefore large centres  of employment. As these are coastal cities, with CBD's nearer  harbour areas, they also have a considerable population working and living in areas of limited geographical space. These factors combine to place intense pressure on available housing in and around these areas. 

With property price growth of of  15.5% and 13.7% respectively in Sydney and Melbourne in 2016 (a continuing trend since 2012), alongside a downward trend of wage price growth across  

all states and employment  industries, there is a growing gap. This is raising bigger questions around affordability for households not currently in the property market in those cities.

However, there is more to Australia than just those markets. Across other states, the affordability issue is quite different. It is not so much property prices that are the concern in some areas but rather employment and the availability of jobs, as well as the uncertainty of income. Therefore, addressing housing affordability is not just about solving a problem for Sydney and Melbourne; it needs national consideration of all the issues impacting affordability across the country.

Indeed, this shows the challenge faced by the RBA. If it should seek to abate housing price pressure in Sydney and Melbourne by raising official rates, which could result in the banks increasing lending rates, this could dampen growth in Sydney and Melbourne but would also adversely impact business and investment confidence in other regions. Thus it would potentially make the affordability issue outside of the capital cities worse rather than better.

"It is important to draw a distinction between affordable housing that is vital to lower socio-economic households, and lack of housing affordability in Sydney and Melbourne that means even financially able households can’t afford property."

The debate about potential short- and longer-term solutions needs to be broad and should account for:

• Tax – For many Australians, negative gearing is their wealth generation vehicle. Many first home buyers choose to be first-time investors rather than owner-occupiers. Changes to negative gearing must not therefore picture all investors as having the same profile. 

• Supply – State and local governments are addressing the process of releasing and approving new supply. However, we also need a supportive policy for retirees who want to downsize their properties without adversely impacting pension eligibility.  

• Infrastructure – To alleviate capital city price pressure, it is vitally important to invest in both physical and technological infrastructure o support workers living in areas outside the city.  

• Mindset – Home ownership is strongly embedded in the Australian mindset and is favourably supported by tax and other incentives. However, focusing on the benefits of ‘permanent tenancy’ should also be encouraged. Many European countries already embrace this, resulting in renting being an entirely acceptable norm. 



~ $384bn - Total new lending (including refinancing) over the 12 months to December 2016

~ 0% - Lending growth between 2016 and 2017 (total new lending in 2016 was also $384bn)

~ 1–5% - The amount industry leaders expect the market will grow in 2017 

Source: Deloitte Australian Mortgage Report 2017


James Hickey

is partner, consulting, and

a member of the Actuaries

and Consultants group

at Deloitte. He is also

co-author of the Deloitte

Australian Mortgage Report 2017