Why don't they look for higher paying jobs ? Bricklayers gets $60/hr in Sydney, cleaners charge $45/hr. They should go back and study online if they are worried about cost of living.
The Sydney suburbs flush with holiday rentals, but where homes are hard to find By Kate Burke and Melissa Heagney-Bayliss May 24, 2023 https://www.smh.com.au/property/new...e-homes-are-hard-to-find-20230509-p5d74f.html Key points Sydney recorded a rental vacancy rate of 1 per cent in April. About 4500 properties in Sydney’s inner city and eastern suburbs were listed on Airbnb in April. Short-term rentals increased in most regions annually, and the biggest jumps were in the west. The number of short-stay holiday rentals in Sydney is rising, even as the city faces a housing crisis. Short-term rental accommodation listed on Airbnb and Stayz increased by more than a fifth over the past year, figures show, rebounding at the same time as the number of vacant rental properties plummeted – pushing up competition for homes and sending rents to record highs. Short-term rentals are on the rise in Sydney. Credit: Sam Mooy Sydney’s inner city had the most short-term rentals in April, at 2345 available listings, up 15 per cent year-on-year, figures from data analytics company AirDNA show. It was followed by the north end of the eastern suburbs – including Bondi, Vaucluse and Paddington – where listings increased 22 per cent to 1537, then the Pittwater region, where listings jumped 30 per cent to 904 properties. The city’s south-east suburbs – including Coogee, Randwick and Maroubra – had more than 600 listings, as did the Warringah and Manly regions. Only properties on Airbnb and Stayz with at least one day booked or available during April were included, and AirDNA removed duplicates. The data did not reveal how many properties were whole homes, or rooms, or how frequently they were available. Across Sydney, available listings increased 22 per cent over the year to April, while Domain data shows the vacancy rate dropped from 1.4 per cent to 1 per cent – just up from a record low of 0.9 per cent. Short-term rental volumes are still half what they were in April 2019, AirDNA spokesperson Madeleine Parkin said, as many properties were rented out long term, sold or became primary residences, due to COVID restrictions and the introduction of short-term rental regulations. “[However], things are starting to pick up again in [Sydney], with decent growth year over year, boosted by international demand returning,” she said. The bulk of the city’s short-term rentals are in the inner city, eastern suburbs and northern beaches.Credit: iStock Nicole Gurran, a professor of urban and regional planning at the University of Sydney, said between a fifth and a third of short-term stays, depending on the market, tended to be whole homes frequently rented out. NSW was the first state to regulate Airbnb-style letting in 2018 when it mandated a cap of 180 days for investment properties in greater Sydney. Gurran was nonetheless alarmed at the increase in short-term lets during a rental crisis. “Is it the whole problem? No it’s not, but if you could wave a magic wand and suddenly release 2000 homes into the Sydney rental market, it would provide a lot of relief,” she said. “Ironically some people are resulting to using short-term rentals because they can’t get into the permanent market, which is horrific given the cost and inherent precarity that comes with that.” Gurran said without further government intervention – including stronger tenant protections and an increase in social housing – the situation would worsen for renters, and backed recent recommendations for a 60-day cap on non-hosted short-term rentals in Byron Bay. Domain’s chief of research and economics Dr Nicola Powell said short-term rentals had a “phenomenal” impact, but were among multiple factors contributing to the rental crisis – including a lack of new housing, a strong return in migration and international student arrivals and a drop in investor activity. Demand for space also increased after the shift to remote work. “It really hits the affordability of dwellings in residential areas … it’s felt most acutely in the rental market,” she said, but noted it could have a flow-on effect to property prices. BresicWhitney chief executive Thomas McGlynn said there had been a noticeable uplift in owners exiting the rental market, but this was largely landlords converting properties back to holiday homes as tourists returned. The Pittwater region is among the pockets of Sydney with the highest volume of short-term rentals. Credit: “Those short-term rentals that converted over [during the pandemic] are only coming out of 12- or 24-month lease contracts now,” he said. “I think that has a small impact with regard to available property for long-term renters, but it’s not something that’s over and above what we were already dealing with pre-COVID.” Michael Crosby, Airbnb’s head of public policy for Australia and New Zealand, said housing affordability was a challenging issue, but added that other factors were to blame for long-term rental shortages. “The causes differ from place to place, with legacy factors – which often predate the founding of Airbnb by decades – ranging from the supply of new homes, the ratio of public housing, the number of empty dwellings and rooms, interest rates and broader economic conditions,” Crosby said. While short-term rentals generally made up a tiny proportion of the market, Airbnb was keen to work with stakeholders to help provide solutions and had proposed a series of measures last year, he said. Stayz director of corporate affairs Eacham Curry said short-term rentals were not the problem nor the solution. “The problems the nation is currently facing have been decades in the making and are more likely the result of costly and arduous planning approval processes and too little land being released for housing development,” he said.
Government has a very fine fool proof and profitable business model. Tax property/RE with increases and which creates additional inflation which increases property prices which increases Tax collection. Unfortunately governments are too stupid to see the damage they cause. Victorian businesses, property investors slam $8.6b budget levy Patrick Durkin and Gus McCubbing Updated May 23, 2023 https://www.afr.com/politics/federa...ug-on-big-business-landowners-20230522-p5dafb Business and property investors are outraged by $8.6 billion in “temporary” levies imposed by the Andrews government in an attempt to curb surging state debt, and they warn that the decade of extra taxes will hit jobs and investment, and exacerbate the rental crisis.
Victorian Labor MPs labelled ‘property barons’ Gus McCubbing and Patrick Durkin Updated May 25, 2023 https://www.afr.com/politics/federal/victorian-labor-mps-labelled-property-barons-20230525-p5db72 More than half of Victorian Labor MPs own more than one property, with government cabinet ministers Lily D’Ambrosio, Jaclyn Symes, Mary-Anne Thomas, Danny Pearson and Steve Dimopoulos, owning 21 additional properties between them. Owners of investment properties and holiday homes have come under fire during this week’s state budget, slugged an extra $4.6 billion in tax over the next four years to help pay down Victoria’s growing $170 billion debt. And Premier Daniel Andrews on Thursday refused to rule out rent caps as part of a looming housing affordability package. Minister for the Environment and Climate Action, Lily D’Ambrosio. Eddie Jim The shock budget move has ignited calls by some Labor MPs and party members to claim that Victorian residents should not own more than one property, labelling them “property barons”. Victorian parliament’s register of interests show that 37 out of Labor’s 71 upper and lower house MPs hold additional properties. The Liberals are also well-represented by landlords, with 15 out of 31 MPs owning additional properties. David Southwick and David Hodgett own a whopping 35 between them, with 24 in family trusts. Seven out of the 11 Victorian Nationals MPs own additional properties, meaning 52 per cent of both Labor and Coalition MPs own multiple properties. Ms D’Ambrosio, the Energy and Climate Minister, owns six investment properties through a family trust, including one in the affluent inner-city suburb of Carlton, where the median house price is $1.5 million, two in Fawkner, one in Brunswick, one in Melbourne, and one in the Mornington Peninsula suburb of McCrae, where the median house price is $1.3 million. Mr Dimopoulos, the Minister for Sport and Tourism, owns investment properties in Hughesdale, Footscray, and the leafy south-east Melbourne suburb of Malvern, where the median house price is $3 million, as well as Aldinga Beach in South Australia, and Woree, near Cairns in Queensland. Ms Symes, the Attorney-General, owns additional properties in Collingwood, where the median house price is $1.2 million, a coastal getaway at Point Lonsdale, where the median house price is $1.6 million, and suburban Maidstone. Mr Pearson, the Minister for Housing, who earlier this year was forced to admit to an error of judgment for not disclosing a potential conflict of interest over his Commonwealth Bank shares, owns additional properties in Winchelsea, Sunbury, St Albans, and the seaside town of Ocean Grove. Ms Thomas, the Health Minister, who has been tipped as a potential future deputy premier in the event Jacinta Allan one day replaces Mr Andrews in the top job, owns additional properties in Carlton North, Northcote, and North Melbourne. Labor MP Sonja Terpstra, who does not own any investment properties, on Wednesday said the Victorian government’s latest budget “might encourage wealth property [barons to] sell multiple properties”, which she indicated could increase supply. “How many properties does one need to own?” she asked. Former Labor strategist-turned pollster Kos Samaras said he had a “personal and moral objection to people on my side of politics owning more than their own home”. Victorian Opposition Leader John Pesutto said Labor’s budget was anti-aspirational, highlighting that one-third of Victorians who own additional properties earn less than $100,000 a year. “If you own more than one property, it’s almost like you’re resented for it,” he said. “Is Mr Andrews and his government really saying to Victorians that what we really want in this state is a one-property-a-person policy? “Are we going to demonise people who save and invest and create their own retirement nest eggs? Daniel Andrews and his government are punishing hope. They are punishing aspiration.” A Victorian government spokeswoman said the average increase in land tax from the temporary levy would be $1300 on a land valuation of $650,000, which equates to a property worth about $1.3 million. “We are doing what matters – paying down our COVID debt so it’s not left for generations to come,” she said. “The land tax levy is temporary, targeted and, above all, responsible.
Exclusive Politics Federal Negative gearing Landlord tax deductions soar as interest rates bite property market By Shane Wright May 27, 2023 Soaring interest rates will push taxpayer support for the nation’s 2.4 million landlords to record levels as deductions offered for borrowing costs surge above $7 billion a quarter. The interest bill on property investors’ mortgages has soared by 50 per cent over the first nine months of this financial year – one of the biggest jumps on record – due to the Reserve Bank’s aggressive tightening of monetary policy since May 2022. Soaring interest rates will drive up the cost of rental deductions, hitting the federal budget bottom line.Credit: Peter Rae Landlords can claim a range of costs as tax deductions against the income they earn on their properties, with a leading economist noting this could help ease pressure on rents as it softened the blow from rising interest rates. Interest on loans is the single largest deduction, accounting for almost half of the total $50 billion expected to be claimed annually by property holders. Both landlords who negatively gear their properties, and those who make an income from their rentals, claim interest deductions. Through the 2010s, the cost of interest deductions was flat due to the small falls in official interest rates. In 2018-19, the nation’s landlords lost a collective $3.1 billion as their costs exceeded their rental income, with interest on their mortgages reaching $23.9 billion. But in 2019-20, as the Reserve Bank slashed interest rates before, and then during, the COVID-19 pandemic, landlords’ interest tax deductions fell to $21.7 billion. The collective rental income loss by landlords on their properties shrank to just $240 million, the lowest since the advent of changes to capital gains tax laws in the late 1990s. Interest rates fell even further in 2020-21, when the Reserve sliced the official cash rate to a record low of 0.1 per cent. Since May last year, however, the RBA has driven official interest rates up to 3.85 per cent. Some economists believe the bank could use its next meeting, on June 6, to take the cash rate to fresh 11-year high of 4.1 per cent. At that level, the interest bill on a $600,000 mortgage will have increased by more than $10,000, which investors would be able to claim as a tax deduction. CPA Australia senior manager of tax policy Elinor Kasapidis said the increase in interest rates would flow directly through to the federal budget bottom line. “To the extent rising interest rates aren’t mitigated by higher rents, they will result in more negatively geared landlords. This will have a flow-on impact for the federal government’s tax take,” she said. “Changes in interest rates are a fact of life for long-term property investors. Equally, fluctuations in tax receipts are a fact of life for the government.” Reserve Bank figures show that between July last year and March this year, property investors paid almost $19 billion in interest on the mortgages held over their rental properties. Over the first nine months of 2021-22, they paid $12.7 billion in interest. In the first three months of this year alone, investors paid a record $7.1 billion in interest. That interest will be deductible for tax purposes. Total repayments also reached a record $10.9 billion. CPA Australia senior manager of tax policy Elinor Kasapidis says higher interest rates will be passed through to the federal budget. This was before the Reserve’s most recent interest rate rise and points to a multibillion-dollar increase in tax deductions by investors against their properties. Chartered Accountants Australia NZ senior tax counsel Susan Franks also said federal taxpayers would bear some of the cost of higher interest rates through the tax deduction system. “With rising interest rates, landlords will be claiming larger deductions against their rental income. If rental income has not increased at the same rate as interest and other rental costs, many will be finding that their rental profits are smaller or rental losses are larger. Thus, less will be flowing through to government coffers,” she said. Franks cautioned investors that the Tax Office was collecting extra data from banks about investment property mortgages and would be looking closely at interest deductions where those loans had been redrawn or refinanced. She said the Tax Office had already found nine in 10 investment property claims were incorrect. “Don’t be tempted to include interest that relates to amounts redrawn under the property investment loan for private purposes as a tax deduction,” she said. The federal Treasury’s latest report on tax expenditures, which measures the cost to the budget of various tax concessions, noted that net rental deductions were likely to jump by one-third to a record $24.4 billion this financial year before increasing again to $26.6 billion in 2023-24. Deloitte Access Economics lead partner Pradeep Philip said the ability of landlords to claim interest as a deduction would protect renters who are facing large increases in their leases across the country. “It’s a design feature of the system. When interest rates go down, the cost on landlords goes down, which helps them in terms of rents,” he said. “Negative gearing actually takes some of the pressure off rents as interest rates go up. By being able to claim interest rates as a tax deduction, it takes some pressure off landlords to pass those rate rises in full on to their tenants.”
What an absolute load of horse shit! Negative gearing encourages investors to compete against legitimate home buyers, forcing up house prices. Increased house prices equal increased taxes and other fees. Negative gearing has to be paid by someone who happens to be the taxpayer who is renting. Rich people use negative gearing to reduce their taxes. Reduced taxes denies government of income, that reduced income is then compensated with other taxes and charges, it always flows back to the people at the bottom of the ladder paying those at the top.
Auctions First home buyer beats 26 others to one-bedroom unit with $847,000 bid By Tawar Razaghi May 27, 2023 https://www.smh.com.au/property/new...om-unit-with-847-000-bid-20230525-p5db5z.html 13/39 Laura Street, which had been guided at $650,000 throughout the campaign. Bidding was quick to start at $685,000, and climbed rapidly as five first home buyers made offers. The result was well above the $730,000 reserve price, and the $625,000 that records show it last traded for in December 2020. The final price would not qualify for a first home buyer stamp duty exemption, even under the government’s proposed increased price caps, which would lift the eligibility threshold from $650,000 to $800,000. Such a sale could qualify for a duty concession come July if the cap lifts from $800,000 to $1 million. Happy buyer Millie (centre) congratulated by friends after the auction.Credit: Peter Rae Successful buyer Millie was not surprised by the strong turnout or result, having missed out on multiple other homes in her one-year property search. “I’ve been to enough auctions now that I know the price guide for something like this, and the competition for something like this,” the 32-year-old film writer and director said. “In Sydney you’re never going to get a bargain. There is so much vicious competition to get in at the moment. There’s just nothing on the market, so I’m not surprised that it went for that price or with this many bidders. I was really prepared.” She was close to missing out on the unit as well, having set herself a maximum budget of $850,000, given concern for further potential rate hikes. Dozens turned out to watch the one bedroom Newtown unit soar above its $650,000 guide.Credit: Peter Rae “I know that I can afford it and I know it might mean not going on holidays as much, but I’d prefer it. I want to set up a home and to start setting up my financial future. “The rental market is f-----. Sydney is f-----. It’s so hard to live here and so hard to rent, so hard to buy. Your option is either paying exorbitant amounts of rent or paying off a mortgage.” Selling agent Astrid Joarder of Ray White Surry Hills had anticipated a strong turnout, but was still surprised by the result. “I was anticipating it to be busy, but I certainly didn’t expect it to go as well as it did,” Joarder said. The home last traded for $625,000 in 2020, records show.Credit: Peter Rae Many in the crowd were shocked by the result and some were annoyed that it was guided almost $200,000 below what it sold for, but Joarder said the price guide was based on buyer feedback throughout the campaign. “We go off the feedback we get throughout the campaign and I made sure to base the price guide on that. People are going to bid where they see value, and they spoke today,” Joarder said, noting the very few homes to choose from were helping buoy prices too. Newtown’s median unit price sits at $597,500, after falling 8.2 per cent over the year to March, Domain data shows. The unit was one of 600 homes scheduled for auction in Sydney on Saturday. By evening, Domain Group recorded a preliminary auction clearance rate of 77.2 per cent from 412 reported results, while 61 auctions were withdrawn. Withdrawn auctions are counted as unsold properties when calculating the clearance rate. In Earlwood, seven buyers – a mix of first timers, investors and a downsizer – registered to bid on a top floor unit at 13/60 Earlwood Avenue that was guided at $800,000. Four buyers were active during the auction which started at $850,000 and rose in mostly “cautious and careful” bids. The two-bedroom unit eventually sold for $1,015,000 to the downsizer. The reserve was $875,000. Selling agent Adrian Tsavalas of Adrian William said the bank valued the unit at $850,000 and the reserve was set $25,000 above that. “Buyers stretched themselves in order to secure it today despite hoping to tap out significantly earlier than where it finished,” Tsavalas said. “The low stock levels are contributing to buyers fighting harder to find something.” “There is a bit of an imbalance between supply and demand in the favour of vendors at the moment, where it wasn’t like that in the second half of last year.” The home last traded for $749,000 in 2014, records show. In Stanhope Gardens, nine families, again mostly first home buyers, registered to bid on a four-bedroom house at 29 Darlington Street that was guided between $1.45 million to $1.86 million. Bidding opened at $1.6 million and offers from five of the buyers pushed the price to $1,803,500. The home sold to a family relocating from Melbourne. Cooleys auctioneer Michael Garofolo expected strong results would continue through winter due to limited supply. “All my agents are singing the same tune: that stock is tight … I don’t see the tap turning on overnight,” Garofolo said. The house sold through Irving Gunawan of First National Hills Direct and last traded for $555,000 in 2008, records show.
Exclusive 1.3 million missing homes blamed on councils and NIMBYs John Kehoe Economics editor May 29, 2023 https://www.afr.com/property/reside...blamed-on-councils-and-nimbys-20230515-p5d8d3 Australia could have built an extra 1.3 million homes over the past 20 years, but costly zoning, planning and building red tape imposed by local councils is chiefly to blame for a huge housing undersupply, according to analysis by former Reserve Bank of Australia economist Tony Richards. In new research published today by The Australian Financial Review to kickstart a series on housing supply, Dr Richards said building more medium-density homes may require taking powers off local councils to stop caving in to “NIMBY” (Not in My Backyard) agitators. Tony Richards says more medium-density residences like this three-storey village in Sydney’s Northbridge are required. The building faced delays after opposition from locals. Peter Rae Dr Richards said the federal government’s target for 1 million new homes over five years was “not that ambitious”, and a much bigger expansion was required to make up for past undersupply and future population growth. Home building has slowed significantly over the past two decades, largely due to prime residential real estate being restricted to single homes, developers facing long and expensive applications, and legal disputes with existing residents. The report, The case for medium-density housing in our large cities, calculates that housing supply has expanded at just 4.5 per cent ahead of population growth over the 20 years to 2021, much slower than the 17 per cent above the population increase in the previous 20 years. Maintaining the earlier pace would have increased the housing stock by 220,000 homes a year, instead of the actual growth of 153,000 a year. The slower building of homes implies a 20-year shortfall of 383,107 homes in NSW, 352,292 in Queensland, 282,694 in Victoria, 160,397 in Western Australia, 102,321 in South Australia, 34,146 in Tasmania, 14,385 in Canberra and 8504 in the Northern Territory. Medium-density required Dr Richards said as the population expanded and cities grew, more townhouses and apartment buildings of about four storeys were required in inner and middle suburbs, not necessarily more “high-rise” towers which the system has “arguably over-delivered”. He said medium-density homes could be approved by making better use of land that is already zoned residential, not taking over parkland or recreation areas. “Our current arrangements introduce barriers to entry into home building and add significantly to the cost of home building,” he said. “If we care about housing affordability and having a city that better meets the housing needs of its population ... we need a planning and approvals system that is easier for home builders to interact with, rather than one that is complex, expensive and corruption-prone. “However, the message is still to get through to some policymakers, especially at the local government level.” Housing All Australians founder Robert Pradolin said local councils were “knocking back” planning permits and adding development costs because of “local politics”. “My concern is the intergenerational economic time bomb and future generations won’t be able to afford a home,” said Mr Pradolin, a former property developer now campaigning to fix the chronic shortage of affordable housing for those on low incomes. “Local councils always ‘talk the talk’ about more social housing, but they don’t recognise that the whole housing continuum needs to be increased to make homes more affordable. “I’ve never met a federal minister, a state minister or local government elected politician that really understands how their decisions impact housing affordability.” The federal budget forecasts new home building will plunge to a 10-year low and collide with the arrival of a record 1.5 million migrants, a clash that property executives warn will worsen housing shortages, drive up rents and inflate real estate prices. There are about 640,000 Australian households whose housing needs are not being met due to homelessness, overcrowded homes or spending more than 30 per cent of their income on rent, according to the University of NSW’s City Futures Research Centre. RBA research finds that a 1 per cent increase in the national housing stock reduces the cost of housing by about 2.5 per cent. State planning ministers and the Australian Local Government Association are developing a proposal for national cabinet to increase housing supply and affordability, and to better plan for services and infrastructure to cope with immigration. Australian Local Government Association president Linda Scott said the nation’s 537 councils had an obligation to plan for the most livable areas for “existing” and “future” residents. “We must, however, invest in the physical and social infrastructure necessary to build vibrant communities, not just homes,” said Ms Scott, a Labor councillor on the City of Sydney Council, one of the nation’s highest-density areas. Australian Local Government Association president Linda Scott says developers are “shelving” approved projects. Olive + Maeve Ms Scott called for the federal government to set up a $100 million fund to help councils facilitate more affordable and social housing, to assist with land audits and housing assessments, and develop business models for housing projects. Extra funding would also help councils overcome skilled worker shortages and limited resources to streamline housing supply, she said. “There is much more local government could do if funded to overcome the workforce shortages of town planners, engineers and other skilled construction workers.” The Productivity Commission’s 2022 review of the federal-state housing and homelessness agreement recommended state governments commit to “firm targets” for new housing supply, “facilitated by planning reforms and better co-ordination of infrastructure”. Dr Richards’ 4200-word essay exposes how builders have to navigate 150-page state local environment plans, in addition to council development control plans that exceed 750 pages in his local council of Willoughby in Sydney. Moreover, local home builder zoning maps confined “large swaths” of land for single-family homes and there was “much less land zoned for medium-density”, he said. Big rezoning updates occurred only about once a decade, and the process for spot rezoning was long, expensive and had uncertain outcomes for applicants. If a rezoning is eventually achieved, there will then be a lengthy process of negotiation with council to get a development approval for a particular building design. — Tony Richards “It involves application fees, commissioning costly reports from various subject-matter consultants to support the application and the likely rejection of the application by council,” he said. “The applicant will then have to decide whether to attempt a costly appeals process that may bring in city-wide or state-level bodies. “If a rezoning is eventually achieved, there will then be a lengthy process of negotiation with council to get a development approval for a particular building design. “So when you see a somewhat run-down house and garden in a well-located area that is close to transport, it is likely that it has been secured by a developer who is working on getting a rezoning and then a development approval.” The bureaucratic red tape led to developers and “speculators” trying to anticipate what rezonings may be feasible in a decade or more and incentivised land banking. “They will then buy up this land, or enter into options to buy the land, and then begin to try to influence the council planning process to include their land in a spot rezoning or in rezonings in future LEPs [local environmental plans],” Dr Richards said. The current arbitrary process made local councils more prone to “corruption”, rent-seeking and special favours. “The upshot of the current arrangements is that the important tasks of home building and modernising our cities have become heavily reliant on individuals and firms whose main skill is navigating the development approval process and influencing local and state government officials to try to ease constraints on what can be built.” Councils reject takeover of powers Ms Scott rejected calls for state governments to take over more powers from councils. “Local governments do object to having planning powers removed that result in poor planning decisions being made by centralised, fast-track planning processes such as allowing development in flood plains and in areas with rich fertile soil,” she said. But Dr Richards said it might be necessary to take some decision-making powers off councils if they failed to streamline approvals. “Building more medium-density housing may require taking some powers out of the hands of local councils and having decision-making that looks beyond the preferences of current local residents, including NIMBYs, and more to the needs of the broader city and of future generations of potential residents.” Ms Scott blamed “property developers shelving projects because of soaring costs and lacklustre property prices”. She pointed to a KPMG report showing a 30 per cent surge in residential construction costs over the past two years had prompted developers to shelve projects. Almost 16,400 dwellings in NSW were approved but not yet begun by the end of March. In Victoria, almost 10,500 dwellings were approved but construction had not yet started. Lindsay Partridge, the chief executive of Australia’s biggest brick making company, Brickworks, said more needed to be done on the policy front to ensure more houses were built, particularly with a big influx of migrants. “My estimate is we [the country] are 250,000 houses short today,” he said. Dr Richards calculates if the historic relationship between population and housing stock was maintained to 2021, Australia would have built about 1.33 million extra dwellings than the 10.85 million homes reported in the 2021 census. “The slowdown in the growth of the housing stock over the past two decades is surprising given that those earlier trends in demographics and preferences have surely persisted – and the pandemic will be adding to these” Dr Richards said. “More broadly, there has been strong demand for housing, with financial liberalisation and lower interest rates significantly increasing household borrowing capacity, along with factors such as demand for housing for new short-stay rental models. “Tax policies are generally considered to have favoured ownership of housing. “And state and federal governments have continued to periodically provide assistance programs for first home buyers. “Yet with all these factors boosting demand for housing, the past two decades did not see a continuation of the strong growth in the supply of housing that was seen in the four previous decades. “What we have seen instead is a significant increase in the price of housing, relative to household incomes. “It is hard to escape a conclusion that the run-up in the price of housing over the past two decades must be related to inflexibilities in housing supply. “The combination of strong demand and inflexible supply has been at much higher prices, with adverse effects on much of the population, both homebuyers and renters.” with Simon Evans
Analysis The mortgage cliff is about to crash into rising house prices https://www.afr.com/property/reside...-face-their-biggest-test-ever-20230525-p5dbax There’s been so much said and written about the fact that billions of home loans will switch from low fixed rates to higher floating rates, we may be forgiven for believing the threat had passed. Jonathan Shapiro Senior reporter May 28, 2023 The mortgage cliff has arrived as we enter the most restrictive interest rate settings households have ever experienced. Can the property market keep rising? When CoreLogic releases its May property data this week it will likely show that national house prices increased for the third month in a row, and at a 1.4 per cent monthly rate, exceeding the previous two months. It’s a property market recovery that CoreLogic’s Tim Lawless says is atypical. An interest rate cut, an expansion of credit availability or a new government policy targeting homeownership are usually the positive catalysts for a rebound. The higher debt levels and increased borrowing costs mean we are now at the most restrictive setting Australians have experienced. Erin Jonasson But this turnaround is defying those forces. Interest rates have increased by the fastest pace in history at a time when households have never carried more debt, while that in turn has slashed the borrowing power of prospective buyers. As Lawless explained to a Fitch Ratings conference, it’s economics 101: the supply is low and demand is ramping up due to a record pace of immigration and a post-pandemic desire for space. The supply is constrained on two fronts, a short-term drop-off in sales, and the longer-term failure for housing construction to keep pace with population growth. The number of new properties listed for sale in Australia’s capital cities is 14 per cent below the five-year average, while the number of active listings is 24 per cent below the five-year average, Lawless told the event last week. Meanwhile, new builds are falling further behind. As Rob Mead of fixed income fund manager Pimco explained at a separate Morningstar conference, about 70,000 new households are formed every year. But the annual pace of construction is only about 40,000. The housing shortage and its social welfare consequences are an issue that more economists and policymakers are turning their attention to, but there is no simple nor quick fix. In the short term, the acute supply shortage is manifesting in several ways. One is through an upward bump in house prices that arrested the interest rate induced decline. The other, of course, is an extremely tight rental market. Rental vacancies in the capital cities are now at 1 per cent, well down on the 2.8 per cent average, which in turn has led to a 16.2 per cent jump in rents for units, and a 9.7 per cent increase for houses, according to Core Logic. That is putting the squeeze on tenants, who as we know tend to be less well-off on average than homeowners. But the situation is worse for landlords. While monthly rents are up about $275 in capital cities, monthly mortgage repayments are up four times as much to about $1000, creating serviceability strains. There is some potential for the pressure on rents to ease. A post-pandemic trend has been for Australians to seek more space. The average household size has slid from 2.55 to 2.49 people. But household sizes are now starting to edge up again. This, Lawless says, is “out of necessity” as roommates are brought in to share the rental burden while others might move back home. Macquarie economist Rick Deverell shares a similar view on rents. In commodities markets, he said earlier this month, the cure for high prices has always been high prices, and spiralling rents could lead to changes in behaviour and an increase in average household sizes. Soft landing hopes fade The tighter rental market does, however, appear to be forcing buyers into the property market, adding to the excess demand to own a home in a market with historically low turnover. At the higher end of the property market there appears to be total interest rate immunity. National Australia Bank accounts showed its private bank grew its mortgage book by double digits, while the mass market retail bank’s book didn’t grow at all. As AMP Capital’s Shane Oliver points out, the housing markets in the US, UK, Canada, Sweden and Germany are also stabilising, amid a growing belief that interest rates have peaked, tighter supply, a strong jobs market, and a household savings stockpile that has yet to be depleted. Lawless says his house price crystal ball is murky but if he had to guess they’ll probably go higher from here. However, he believes the current rate of house price growth, of 1 to 1.5 per cent a month, is simply unsustainable given affordability and serviceability constraints. The swing factor, he says, will be the path of interest rates. But where are those interest rates heading? Money markets are pricing in an implied peak rate of 4 per cent in September (or put another way, a better than two-thirds chance of another cash rate increase to 4.1 per cent). Meanwhile, Reserve Bank governor Phil Lowe is reported to be briefing politicians that interest rates will have to go higher, and warning that further wage rises would force his hand. Lowe has been holding out hope of engineering a soft landing for the economy by raising interest rates by enough to gradually bring inflation into its target range, while preserving the jobs gains of the past few years. But it seems he’s now managing expectations on that front. Lowe’s task has been complicated by the surge in immigration, which is adding to the labour supply and reducing wage pressure, but is also increasing demand for housing, forcing up property prices to support consumption via the wealth effect. While evidence is only now beginning to emerge that rising rents and borrowing costs are changing households’ behaviour, and slowing economic activity, Pimco’s Mead suspects we’re at the early stages. Pimco, he says, had calculated before the hiking cycle began that a cash rate of 3.5 per ent to 4 per cent would be the point at which households begin to really feel the squeeze. Fixed-rate mortgage cliff At the current setting of 3.85 per cent it is the highest it’s been since 2012. But since then, household debt levels have increased from 120 per cent to 145 per cent. Meanwhile, mortgage rates relative to the cash rate have increased by about 1 percentage point, which means the current rate is equivalent to a near 5 per cent setting in 2012. The higher debt levels and increased borrowing costs mean we are now at the most restrictive setting Australians have experienced. This is based on a measure of interest payments to income, which will soon exceed the 2006 peak of 14 per cent. One factor behind the delayed reaction of households has been the so-called fixed-rate mortgage cliff. There’s been so much said and written about the fact that billions of home loans will switch from low fixed rates to higher floating rates, we may be forgiven for believing the threat had passed. But the reality is that the bulk of those 2 per cent to 3 per cent home loans are only just about to roll off. By the end of the year, 50 per cent of those cheap fixed-rate loans will be refinanced, representing about 17 per cent of all mortgages. The mortgage cliff has arrived, and only now can we truly assess the extent to which high interest rates will impact consumption. So, we’re about to reach a crunch point for the housing market – which seems strong on the surface but less so below it – and for the Reserve Bank, which is dealing with a high degree of uncertainty and competing forces. It’s never been wise to bet against Australian house prices, But Mead thinks it’s more dangerous to put absolute faith in the Reserve Bank to come to its rescue. Says Mead: “If any households or businesses are somehow expecting that all they need to do is ride out a short-term storm in terms of higher interest rates and suddenly, miraculously, they’re going to come down, we think it’s a fool’s paradise.”
Worsening affordability hits poorer renters hard Nila Sweeney Reporter May 29, 2023 https://www.afr.com/property/reside...lity-hits-poorer-renters-hard-20230526-p5dbid The portion of income needed to pay rent on new leases lifted to 30.8 per cent nationwide during the March quarter, the highest level since June 2014, as surging demand and falling supply fuelled record-breaking rental price increases in the past year. The ability to service a new mortgage has also worsened, as the share of income needed swelled above the 10-year average across the board, sparked by the rapid interest rate rises since last May, according to the ANZ CoreLogic Housing Affordability report. Falling rental affordability has hit low-income renters hard, according to CoreLogic. Felicity Emmett, senior economist at ANZ, said rental affordability would worsen further in the coming years as demand continued to rise and the housing supply pipeline declined. “I think we’ve got a problem with very strong demand, as well as reduced supply,” Ms Emmett said. “There’s a little bit of a pickup in investor lending, but it’s still at a low level. We also know that we’re going to see a decline in approved unit commencements and completions over the next few years. “And on the demand side, we know that migration continues to grow very strongly, so we’re going to see those pressures build up, particularly in Sydney and Melbourne where the bulk of new migrants go. It’s really hard to see much of an improvement in rental conditions at all.” The report found 30.8 per cent of income is required to service a new lease nationally, for a median income household. However, low-income renters bore the brunt of the deteriorating affordability: their share of income required to meet rental payments blew out to 51.6 per cent, up from 41 per cent before the pandemic, suggesting extreme stress for this cohort, said Eliza Owen, CoreLogic head of research. “I think the deterioration in rental affordability is an inconvenience for some average and high-income renters, with most still able to live fairly comfortably by spending just over 30 per cent of their income on rent,” Ms Owen said. “However, it’s an absolute impossibility for low-income earners. The decline in rental affordability is hitting them hard and it’s looking quite critical and extremely unpleasant at the lower-income spectrum of the market.” Perth recorded the fastest deterioration in rental affordability for low-income households since the onset of the pandemic, jumping from 39 per cent of income needed to 51.7 per cent as of March this year. Rental conditions for low-income earners in Adelaide and Brisbane also declined rapidly as the portion of income needed to pay rent climbed by nearly 10 percentage points to 55.1 per cent and 50.9 per cent respectively. Sydney’s low-income renters spent 52.5 per cent of their income, while those in Hobart needed nearly 60 per cent of their income to pay rent, which was the highest across all capital cities. By contrast, rental conditions were relatively unchanged in Darwin for low-income households since the start of the pandemic, while those in Melbourne needed slightly less at 44.3 per cent as income rose faster than rents in this cohort. “In reality, low-income households may not be able to pay for rentals,” Ms Owen said. “As rental affordability has deteriorated, an increasing number of people have had to turn to over-crowded or insecure options for shelter. “A recent report by the Productivity Commission found that in 2020-21, around 114,000 requests for specialist homelessness services went unassisted, up around 20 per cent from 2016-17.” Rents started to rise in late 2020 and accelerated in the biggest capital cities in the past three months, according to CoreLogic. Sydney’s eastern suburbs, inner south and inner west racked up the strongest rental growth of between 6.2 per cent and 7.8 per cent, or an increase of up to $116 a week. Melbourne’s inner suburbs posted a 6 per cent increase and Perth’s north west rose 5.9 per cent. “These markets showed an acceleration in quarterly growth, meaning that rent values not only increased, but the pace at which they increased was rising,” Ms Owen said. Different story in regions By contrast, some of the most popular regional areas that benefited from the migration to the regions during the pandemic have posted a drop in rent over the same period as employees return to the office. Units in the Southern Highlands and Shoalhaven region notched up the largest decline of 5.4 per cent in the three months to April, followed by a 5 per cent fall in unit rents and a 4.5 per cent drop in houses in south-east regional Tasmania. But these declines are occurring after strong rises of about 25 per cent on average in previous years. Housing affordability also worsened for those who bought homes in the past year after 13 interest rate rises. Sydney continued to be the toughest market to crack: homebuyers needed 62 per cent of income to service a loan for a house, well above the 49 per cent long-term average. In Melbourne, homeowners spent 50 per cent of income on their mortgage, Brisbane homeowners needed 47.5 per cent, Adelaide 33.7 per cent and Perth 47.4 per cent.