Housing Affordability – Our First Home Buyers’ Greatest Challenge

There’s hardly a day go by where this hot topic is not mentioned, discussed or debated in the media or on the streets. With property prices across most Australian capital cities escalating in recent years, it’s not surprising that housing affordability is seen as a real threat to the
‘Great Australian Dream’ and a matter of national importance.

The OECD (or Organisation for Economic Co-operation and Development) conduct extensive comprehensive economic surveys each year after consultation with officials from various countries. In its 2017 report for Australia, the OECD stated property prices and household debt have reached ‘unprecedented highs’ in recent years and warned of a major correction to the Australian economy should this property trend continue. The survey found house prices have risen up to 250% in some locations since the 1990s, much of the increase in the past few years. This seems to have strained affordability for first-time buyers, particularly in Sydney and Melbourne. Australia's household debt to GDP ratio has climbed to around 123%, an all-time high and third highest in the world.

So, who or what is the cause of this determined escalation?

According to the OECD report, foreign investors have NOT fuelled this situation, as is the popular perception. Rather, local investors and owner-occupiers, as well as historically low interest rates have consistently driven values in recent years to an unsustainable level of growth. Supply of homes for sale has also softened, with prospective vendors holding off selling through fear of not being able to replace their home with something similar due to escalated prices - instead, many have used equity in their residence to purchase investment properties. The slowing of supply has also powered greater competition amongst buyers, especially for unique properties or those located inner city - middle suburbs. Super low interest rates aren’t helping – if anything, they’ve encouraged greater investor activity. Tighter lending standards for investment loans from 2014 have notably slowed investor activity, though the OECD report claims that should prices stall and investors no longer view capital gains as a certainty, there’ll be a major drain on demand and wider spread implications for the economy. Yet,there’s also a chance real estate pricing could correct gradually without major negative impact - signs of which we are already seeing in some pockets of Melbourne where vendors are being more realistic about their reserve price and buyers becoming more discerning about perceived value, rethinking what they are prepared to pay.

So, given the situation, what can really be done to assist first homebuyers? Many would agree that cutting interest rates further to stimulate the economy would risk further inflaming real estate prices – this won’t help (as we have seen to date). Creative solutions are needed. The government last week announced sweeping changes to the stamp duty structure, with substantial duty savings for first-home buyers – a very positive move in the right direction to resurrect this flagging sector. First homebuyers are also encouraged to speak to an experienced broker to fully understand their borrowing position and discuss competitive loan solutions – valuable information that could genuinely assist in making that first home dream a reality, sooner rather than later.

If you are or know someone that is a first-time buyer, then perhaps the best thing get started is talk to an experienced mortgage broker and understand what your borrowing position is so that you can go out and buy or bid with confidence.

Please don’t hesitate to call us on 0438 041 111 to arrange a confidential discussion to get you started.

As always, enjoy life, work hard, play safe and remember that we are always here to help you
‘Take the Confusion Out of Lending’

Peter Vinci - 0438 041 111