Australia’s home affordability crisis is getting worse every month and there is no relief in sight for home owners and or for that matter would-be home owners.
The latest research by the Real Estate Institute and Deposit Power shows that home loan affordability worsened in every State and Territory in the June quarter 2006, with the exception of Tasmania, which was unchanged.
According to REIA President Tony Brasier the May 2006 interest rate rise had an immediate impact on first home buyers with their share of all dwellings financed falling from a much improved figure of 19.1% in April 2006, down to 17.4% in May and 17.0% in June.
Brasier said that the latest figures show that the August 2006 interest rate rise is likely to have a further negative impact on first home buyer sentiment.
“In the short term, the 4% annual increase in the CPI to the June quarter 2006 will also hurt homebuyers’ pockets, particularly highly geared borrowers,” he added.
“Median family income has not kept pace with CPI over the year to June 2006, except in South Australia and Tasmania which saw 4.1% and 5.2% increases in median family income respectively. This, combined with increased average loan repayments, increases the likelihood of financial stress for homebuyers.
“A stable interest rate must be a priority. While Government is correct to point out that interest rates are well below the double digit rates of the period up to September 1991, Australia now has the fourth highest interest rates of all OECD countries, with only New Zealand, Iceland and Turkey having higher rates.”
Brasier admitted that over the past 10 years Australian home owners have enjoyed single digit interest rates with six of those years being below the current interest rate interest rates.
“Whilst today’s rates are historically low, Gen X and Y home buyers have only known single digit interest rates – this is their financial norm, not the interest rates of 30 years ago. Home buyers have quite rightly made financial and lifestyle choices based on expectations of stable, single digit interest rates, thus the level of pain experienced by many highly geared borrowers faced by interest rate rises,” he said.
Brasier urged governments across Australia to assist in improving housing affordability.
“REIA continues to call on governments to index the first home owners’ grant, reduce or abolish state property taxes and improve land release. In particular, REIA calls on State Governments to explain how they might use property taxation to improve affordability.
“There would be potentially significant benefit in the Federal and State governments agreeing to a government / industry taskforce to review the report of the very good work undertaken by the Productivity Commission on first home affordability in 2004 to identify specific issues which governments might subsequently address,” Brasier concluded.
By Adam Parsons
