People just can’t stop talking about property. And that’s no surprise really. Property prices are surging right across the country, creating news headlines for both positive and negative reasons.
We’ve seen rapid growth over the last 18 months and prices truly skyrocketing in 2021. Over the year to September, prices shot up by more than 20% in capital cities and by nearly 25% in regional areas. These gains have created a huge accumulation of wealth for some households – but that’s not everyone – more than a third of Australians rent.
So, while it’s great news for owners and investors, for people trying to enter a market that’s grown significantly in the past 6 months, it’s kind of devastating.
For those wanting to buy, higher property prices mean having to save a larger deposit – which for some seems almost impossible. As prices continue to surge, the discussion has shifted to a focus on affordability. These rising concerns about accessibility for first homebuyers are evident when analysing the national discussion about property.
Looking at data from the media monitoring service Streem, it can see how many times “housing affordability” was discussed in mainstream and trade publications, both print and online.
Over the past six months, housing affordability has been discussed more than twice as frequently as it was in the months prior. In the month of September, coverage of the topic was up a significant 141% year-on-year.
While the cost of buying is rapidly growing, there is a silver lining. The record low interest rates are making it easier than ever to service loan – much easier than it has been in the last decade or more.
Serviceability today is easier than it was as recently as 2018, when the Reserve Bank of Australia cash rate was 1.5%. And serviceability is muchbetter than in 2008 when the cash rate peaked at 7.25%.
Today, the cash rate is just 0.1% and the average rate for a new variable mortgage is 2.7%.These low rates mean that even with today’s larger mortgages, average repayments are much smaller than in the past.
While serviceability is better than ever, accessibility is the big issue. Governments and commentators are looking for solutions to help first homebuyers enter this surging market. Recently, we have seen new and expanded policies to tackle affordability.
The federal Falinski Review is looking at affordability. Some of the discussion and submissions have focused on how to ease local planning constraints to make it easier to build new housing.
There are also other programs that have either been announced or expanded in the past 18 months. Two key examples are the federal First Home Loan Deposit Scheme and the Victorian Home Buyers Fund – both designed to reduce the deposit needed for a first home.
Finally, we’ve also seen the Australian Prudential Regulation Authority tighten how banks conduct serviceability assessments. This policy wasn’t designed to address affordability. Rather, this so called “macroprudential” policy was designed to reduce risky borrowing in response to rapidly rising house prices.
As regulators have grown concerned about risks from rising debt, we’ve seen discussion of these types of “macroprudential” policies increase 134%.
These discussions of affordability, and policies to help, are important. Home ownership rates have fallen over the past three decades, particularly among younger Australians.
As well as solutions to affordability we’ve also seen increased discussion of “negative gearing” (up 102%), “investors” (up 35%) and “capital gains” (up 64%). These areas are frequently touted as changes that could help alleviate high housing prices.
We can expect property to be big news for a while yet. Especially as interest rates rise. Watch this space.
