My recent trip to Europe confirmed that the findings of the 2022 Annual Demographia International Housing Survey – a report that measures housing affordability in relation to incomes - were sadly correct. 

As a resident of Sydney's Northern Beaches, the news that my city is the second most expensive city in the world after Hong Kong has been proven to me over and over again, and only this week when my local supermarket charged me $2.50 for what was, at best, a mouthful of red cabbage, I couldn't help thinking back wryly to the comments of the various tour guides I met about the cost of living and property prices in their respective cities.

If you look more closely at the results of the survey, they show that the median multiple of house prices to income for major cities is 7.7 times in Australia compared to 4.8 times in the UK and 4.2 times in the US. In Sydney, it is 11.8 times and in Melbourne, it is 9.7 times.

Which begs the question, when did Sydney become less affordable than London?

The survey also noted that Melbourne is the fifth most expensive city of the 92 major housing markets in the eight nations studied, which made me question where exactly that leaves our population, in particular the middle classes, for whom affordable and available housing has become a real issue.

AMP CAPITAL sums up the problem: “First, the shift from high to low-interest rates has boosted borrowing ability and hence buying power. Second, there has been an inadequate supply response to demand.”

What has caused this unprecedented rise in property prices?

Broken down, there are clearly several reasons why property prices have increased at such a disproportionate rate over the past 25 years:

1. Foreign investment in residential property
2. Stronger land use regulation
3. Limited government release of new land
4. Lack of investment in construction
5. Tax systems such as negative gearing and capital gains discounts
6. High population growth
7. High stamp duties
8. Our highly urbanised market
9. Immigration

And in Australia, there is another contributing problem – the growing shortage of habitable land, particularly with the impact of climate change and the fluctuating weather patterns that are making many towns, such as Lismore in northeastern New South Wales, unliveable.

The increase in property prices coincides with record low wage growth, record low-interest rates and record household debt

Knowing that this problem is global is global is little comfort. “The National Association of Home Builders announced that nearly 70% of US households cannot afford the median (middle) priced house, while Canada’s Parliamentary Budget Officer reported that house prices had virtually doubled in just six years,” the survey informs us. 

Improvements that the government is aiming at curbing the problem - incentives to buy and more investment in construction and infrastructure in our major cities - will take time to be felt. Especially when our building industry is still trying to catch up on two years of lockdowns and labour shortages. 

This means that landlords will continue to hold the power until the interest rate rises and those other improvements take effect - which may be good news for investors, but not such great news for renters and buyers.

The pandemic has a lot to answer for…

“The effect of the Covid-19 pandemic… spurred housing demand because higher-income households who were able to work from home wanted more space and were willing to live further away from their offices. At the same time, the pandemic caused supply-chain bottlenecks and permitting delays that slowed new-home construction,” says Sam Khater in the report, chief economist at the US Federal Home Loan Mortgage Corporation (Freddie Mac).

Immediate action into reversing some of the direct causes of the problem will help, i.e., softening land use regulations, reducing stamp duty and encouraging more of the population to move out to rural areas. However, those changes must be made now, because (according to the survey), “Lowering the Middle-Income Standard of Living: There is a broad view that declining housing affordability is driving higher costs of living that threaten the future of the middle-class,” an impact that we are already feeling in our everyday living costs, from the cost of our energy and petrol prices to our weekly food bill.

The good news is that…

Property market fluctuations are cyclical, and once these corrections are implemented, confidence should increase again to help buyers get back on the right track. The signs are already apparent that we are in a buyer’s market and if our wages are aligned closer to the cost of living; our states continue to invest in new housing; the deposit required by buyers is reduced and their spending and debt capped by the banks, then hopefully, our middle-class population will also realise the Australian dream of owning their own home.

Of course, the best way to make the buying and selling process easier, quicker and cheaper is to buy or sell off-market, and Listing Loop's impressive portfolio of properties is just waiting for the right buyers to snap them up.

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