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Housing affordability in Australia

Last Updated Jun 7, 2017 · Written by Philippa Land


Housing affordability in Australia has  become a crisis. The price of a home has been on an incremental rise since the 1980s, subsequently leaving people unable to enter the property market or even afford to pay rent. The  federal budget announced on May 9th  2017 proposed some policies to help make property more achievable for first home buyers.  But how will these concepts help the average person with housing, and will they be enough? We asked people on the street and in a survey how they feel about housing affordability.  

Housing in Australia has become a prominent topic in political and everyday conversation. With property both to buy and rent having had a steady incline in cost over the last 20 years, greater than the rise in income. Particularly in major cities, it seems almost unachievable for first home buyers and low income earners to get on the property ladder, with the high cost of rent making it hard to save a large deposit. Currently the average price of a house in Sydney is now at $1.1 million, which has increased dramatically from 1997 when it was around $233,250. On May 9th the federal government proposed some policy updates to assist in making property more accessible. We asked over 346,440 people* whether they think these changes will help, and if not what they feel will help.

housing prices in Australia

Graph** - House prices for major cities in Australia from 1987

“The house prices are on the increase while salaries remain the same, allowing buyers to access 30k from super is all well and good but they still need to put the money back in for their retirement.  Have more options available for affordable housing for first time buyers, not everyone wants a tiny box with a tiny amount of land, have more family friendly options for purchasing and if people really need it, have a rent to own scheme.”

Background and the federal budget

Essentially houses have become more expensive as demand has skyrocketed and supply dwindled, with several contributing factors to the boom. Property prices have increased for many reasons including: popularity of living close to city centres; the centralisation of city centres containing most available jobs; the Australian dollar being favorable for foreign investment; the significantly reduced interest rates compared to 30 years ago; banks approving huge loans in comparison to salary. On top of this there are also introduced features such as negative gearing for investors to claim losses through their tax return, relaxed rules and no capital gains tax for foreign investors, and perhaps the first home buyers grant giving people actually more money to spend. The federal budget announced on 9th May included some changes to help curb the rising affordability issue:

First home buyers

First home buyers will now be able to make voluntary contributions towards their superannuation to save for a house deposit and benefit from the less tax on their take home pay. People saving for a first home deposit will be able to take some funds (to a maximum of $30,000) from their superannuation towards the deposit, with the voluntarily contribution capped at $15,000 each year. Couples will be able to both access this.

Foreign investors

Foreign investors will be charged extra tax on vacant properties and an increase in application fees. Foreign investors will now have to pay capital gains tax when selling their main residence (previously exempt), and the ownership of foreigners on new developments will be capped at 50%.

Property investors

Property investors are being encouraged to support affordable housing schemes through a variation on tax, with the capital gains tax discount on affordable housing to move from 50 to 60%. Currently investors have been able to claim on tax any expenses on travelling to and from properties in different states - this has now been scrapped (saving half a billion in revenue).

Older people

There is also a little help for older people wanting to downsize their home. The proposal allows a pouring of up to $300,000 into a super fund, allowing to not be hit so hard by reductions to pension. This may also help to free up family sized homes.

“I think the new access to superannuation law should be abolished… it’s going to create an issue in the future. I think investing money in infrastructure connecting major cities, such as the Melbourne-Sydney link is a great idea. It will create satellite cities along the way and create jobs with new suburbs that will be modern and affordable. Also businesses will be encouraged out of the cbd and into new areas which will be beneficial to all of us.”

Will these policies have an impact on affordability?

We asked over 346,440 people how they feel about housing affordability and the federal budget. Respondents were asked “On a scale of 1-10 how do you feel about what the government has announced as part of the federal budget 2017 to address housing affordability?” With 0 being housing affordability is not being addressed, 5 neutral and 10 being I feel great about housing affordability. The majority feel neutral about the proposed updates.

 

Housing affordability

 

“More incentive for first home buyers, along with taking into account what is being contributed on a weekly basis for renters to be put towards the reflection on owning a mortgage.”

What could help?

“What do you think could be introduced, increased or abolished to overcome this affordability problem?”. In response to this there were a range of ideas highlighting the complexity of the issue. In particular down the small end of percentages: Less than 1% said nothing should be done or it’s not an issue; 4.3% think accessing superannuation is a good idea; and 4.5% of respondents said young people need to save more.

 

Housing affordability Australia

 

These figures suggest that generally housing affordability is recognised as an issue, and that cutting down on avocado toast and lattes probably won’t help to save for a massive deposit. In terms of what could be introduced thoughts were spread, but typically some consistent ideas were raised including: 20.4% of people said stamp duty should be reduced or abolished; 17% said there should be more control on foreign investment; 12.2% think negative gearing needs to be either reduced or abolished.

“Reduce the amount of stamp duty. Here in South Australia it's pretty high and that money could be better spent elsewhere.”

 

Housing and stamp duty

Also mentioned in the survey were ideas for developing regional areas to be more accessible, build better connected railways to outer suburbs and high speed rail between cities, developing satellite cities. To develop jobs outside of the cities and decentralise business centres. Banks to be controlled over how much they can loan borrowers. A cap on the price of property. Rental history to be counted as savings for a home loan. More land to be released. Increases to the first home buyers grant. Housing releases for first home buyers only. Reductions in auctions. An introduction of packages similar to United Kingdom and parts of Europe where people can enter a shared ownership with local government, which has benefits for both parties in terms of equity.

The responses both on the street and in our survey begs the question – Are the right measures being looked at to truly address and have an impact of the housing affordability?

“Too late. Interest rates are the only tool to bring housing affordability in line. Increasing rates will only cause massive heartache to all homeowners. This should have been done a decade ago, too many people are mortgaged up so changing interest rates today will create a crisis.”

*This data is based on a survey of people subscribed to hipages newsletters.

 

**Graph data sources:

http://www.econ.mq.edu.au/Econ_docs/research_papers2/2004_research_papers/Abelson_9_04.pdf

http://www.abcdiamond.com/australia/median-house-prices-in-australia/

https://www.livingin-australia.com/australian-house-prices/

http://www.news.com.au/finance/real-estate/buying/the-true-extent-of-australias-rising-property-prices/news-story/88fa34f997e4858c558e74c2c52cda40

http://www.domain.com.au/product/wp-content/uploads/2017/01/DM15679_Domain_Rent_House_Report_December_2016.pdf

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