Tuesday, 25 October 2011

More Australians face housing stress

More Australians face housing stress

abc
David Taylor, On Tuesday 25 October 2011, 17:50 EST
Previously unreleased documents from the Reserve Bank show that a significant proportion of Australians are under serious financial stress because of their mortgage.
First-home buyers who indulged in the borrowing binge inspired by the Federal Government first-home owners' grant in 2008 are under the most strain.
A separate report shows that an inflated property market has left around one in 10 Australians facing poverty.
The early part of last decade saw the beginnings of a once-in-a-generation mining boom.
Investors also were riding high on a share market that could do no wrong.
As a result, many Australians decided to take out a mortgage between 2004 and 2007, confident they were financially secure.
This fuelled a big jump in house prices, creating what some have described as a housing bubble.
Steve Keen, Associate Professor of economics and finance at the University of Western Sydney, says the jump in house prices created "one of the biggest housing bubbles on the planet".
Reserve Bank documents show that group of borrowers is now sinking in debt.
First-home buyers also are feeling the squeeze.
Almost a quarter of first-home buyers in Melbourne, and 15 per cent of Sydney home owners, are now dealing with financial stress.
Those borrowers flooded into the market in 2009 when the first-home owners' grant doubled to $14,000.
"These people are going to be dragged into too much debt," Mr Keen said.
"At the top of the bubble they'll be the sacrificial lambs of a temporary recovery caused by restarting the housing bubble, and when it all comes down they'll be enemies of the people who brought the policy and got them into the debt in the first place." Keeping pace House prices in Australia have been growing steadily now for the past 15 years, but the income of everyday Australians has not kept up.
Figures from RP Data show the average Australian income is now between $55,000 and $60,000, but a typical house is worth around $450,000.
With the cost of living included, this means the median dwelling price is around 6.5 times disposable income for households, more than double what is considered affordable.
Principal research fellow at the National Centre for Social and Economic Modelling, Ben Phillips, says this has created stress for borrowers and renters alike.
"What we're seeing here, particularly for the renters, is that they are spending a lot of money on housing," Mr Phillips said.
"So it means that there's less money left over for all the other items they may be wish to spend their money on.
The problem is straight forward; there simply aren't enough houses and apartments being built to accommodate the expanding population, forcing prices higher, says Mr Phillips.
Incentives It is not just simply a matter of building a new house; infrastructure and incentives for developers to create the necessary facilities also are required, says Macquarie Group senior economist Brian Redican.
"You really need the roads, the hospitals, the schools and the other transport infrastructure to be put in place," he said.
We also need to see an urgent pick-up in the willingness of developers to break more ground, but that might not be far off.
"Somewhere down the track we should see higher levels of housing construction," Mr Redican said.
"That will increase the supply of housing and should make it more affordable for more households." More affordable, maybe, but there is still no mention of a major housing downturn.
"I think the most likely scenario is small house price declines, similar to what we've had in the last 12 months, so where prices are sort of probably down 3 to 5 per cent," Mr Redican said.

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