The Great Australian Dream of home ownership remains a driving force in Australian economic life, although market accessibility, affordability, and the expectations of individuals and the wider society have changed dramatically in the past 50 years.
Australians love their homes, whether they are inner-city designer warehouse conversions, cottages with a backyard washing line and picket fence, or a beachside holiday shack being demolished to allow a brand new medium-density development to be built.
It's not just a "feel good" thing. Research by social justice agencies such as the Australian Council of Social Services has found that home purchase can provide considerable benefits for individuals and families, including social benefits such as a sense of security and community belonging, and economic benefits derived from long-term tax-free capital gains and the capacity to generate wealth from home equity. The government's objective of self-funded retirement assumes home ownership for retirees if a reasonable standard of living is to be assured.
Australia's currently dynamic property market
There are several reasons why the Australian residential property market is currently so dynamic, including the desire for home ownership, low interest rates, improved credit availability owing to financial deregulation, population growth, perceived risks in the share market, business confidence, economic prosperity and strong employment. As housing prices increase and thus personal wealth grows, people are borrowing more to fund strong consumption. This has been a major contributor to Australia's strong economic growth over the past few years.
The Real Estate Institute of Australia's June quarter 2003 Market Facts, showed that prices were continuing to surge upwards, a trend that has been a feature of the market since mid-1996. While there are some indications that the upward trend may be starting to slow, urgent answers are needed to address the increasingly tough market conditions for first homebuyers and low-income earners.
Deterred by rising prices and the consequent large mortgages and income required to service these loans, however, a significant sector of the Australian community may be unable to become home-owners unless governments, state and Commonwealth, take housing affordability seriously. Others may not be able to commence home purchase until so late that they continue to have substantial mortgage debt into retirement.
In addition, a number of economic and social changes in Australian society are making it more difficult for Australians to purchase their own homes, including the changing employment profile in Australia, later and second family formation, divorce, greater longevity and changing consumption trends supported by unprecedented levels of household debt.
A decline in home loan affordability
Despite the good news that the surge in house prices has brought to existing home owners, the Real Estate Institute of Australia is concerned about housing affordability for first-home buyers and low-income earners in particular. While affordability is above that of the early '90s, when double-digit interest rates were the order of the day, there is little doubt that low-income and first-time entrants to the housing market are confronted with historically high housing prices and the related difficulties in securing and paying off large loans.
This may explain why home ownership has dropped from 69 per cent in 1988 to 67 per cent in 2001, according to Australian Bureau of Statistics census data. The fall in home ownership has been particularly marked in the 25-to-34-years age bracket, according to research by the Committee for Economic Development in Australia.
The affordability of home loans across Australia fell to a seven-year low according to the June 2003 quarter AMP Banking/REIA Home Loan Affordability Indicator. The national Home Loan Affordability Indicator (HLAI), the ratio of median family income to average loan repayments, fell 3.6 per cent for the June 2003 quarter and 8.7 per cent for the year to June 2003, taking it to the lowest level recorded since June 1996.
The decrease in home loan affordability continued to price first-home buyers out of the market. In June 2003, first-home owners comprised only 13.9 per cent of all home buyers compared with 17.6 per cent in the September 2002 quarter. This decline is the result of a number of factors including the fall in housing affordability, low interest rates and the phasing back of the First Home Owners Grant Scheme. The average home loan for first home buyers is now $172,000, up from $154,700 in September quarter 2002.
The total value of new home loans surged to a new record of $22.817 billion, up 18.5 per cent on the previous quarter, reflecting consumer confidence in the property market. The Australian average home loan increased 5.9 per cent to a record high of $187,542.