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Australia’s Housing Shambles

Australia’s Housing Shambles

Hugh Pavletich FDIA
Performance Urban Planning
Christchurch
New Zealand

April 28, 2010

Australian National Housing Supply Report

Sydney's housing shortage to continue - Sydney Morning Herald

Housing shortfall doubles in year - The Age
Developers 'should get more certainty to help plug homes shortage' | Herald Sun
State's growing housing crisis blamed on government bureaucracy | Courier Mail

In reading the above Australian Housing Supply Report and media reports, reference needs to be made to the 2010 6th Annual Demographia Internatuional Housing Affordability Survey (data September 2009 Quarter) released in January. This Annual Survey assesses housing affordability based on the Median Multiple (median house price divided by gross annual median household incomes), of the 272 major urban markets of Australia, New Zealand, United States, Canada, Ireland and the United Kingdom.

To rate as affordable, housing markets should not exceed 3.0 times annual household incomes. Within this year’s Demographia Survey, Australia’s housing bubble is the worst of the countries surveyed at 6.8 times annual household earnings, New Zealand 5.7, United Kingdom 5.1, Canada and Ireland 3.7 and the United States at 2.9 times annual household incomes.

This years Demographia Survey illustrates how a household in Sydney on the median household income purchasing the median priced house, can expect to spend 57.4% of their gross income servicing the mortgage, while a Melbourne household can expect 50.4% of their gross household income being required to service the mortgage.

In contrast – within the affordable North American markets, a Dallas Fort Worth household mortgage servicing would require 13.4% of the household income and Atlanta, Georgia 16.8% of the annual household income.

For housing markets to rate as affordable at or below 3.0 times annual household income, new starter housing stock must be allowed to be supplied on the urban fringes at around 2.5 times the median household income of specific urban markets. This new fringe starter housing stock should have a Development Ratio where 17 – 23% is serviced lot costs, the balance the actual housing construction. The fringe is the only supply or inflation vent.

When Governments do not allow new starter housing stock to be supplied at these levels, unnecessary housing bubbles are created.

This year’s Demographia Survey illustrates that Sydney’s median household income is $62,400. To rate as affordable at or below 3.0 times household income, the median house price should not exceed $187,200. To ensure this particular housing market stays affordable, new starter house and land packages should be available on the fringes at 2.5 Median Multiple or $156,000 – around $31,200 (20%) for the serviced lot, the balance being $124,800 (80%) for the actual housing construction.

The Sydney Morning Herald article Sydney's housing shortage to continue reports that it now costs $560,711 to build a new starter home on the fringes of Sydney, around 9.0 times the median household income of this particular urban market. This is grossly outside the norm of 2.5 times.

Fringe starter housing in Sydney is therefore costing some $404,700 more than it should.

Governments at all levels in Australia are clearly failing to inform the public of the seriousness of the housing affordability crisis. To date, there have been no meaningful steps taken to address this issue.

ENDS

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