As rising interest rates and inflated property prices push the dream of owning a home out of reach of many ordinary Australians, the question must be asked: are we facing an affordability crisis?
Justin Wood, says that may well be the case. “A recent survey conducted by Westpac revealed that one in three young Australians anticipate they would be permanently locked out of the housing market,” he says.
“There is no doubt that affordability has become an issue for young Australians. In recent years, they have been priced out of the market in some of the more desirable locations in our major cities. Sydney remains the most unaffordable city in Australia followed by Melbourne, Brisbane, Perth and Canberra.”
There are plenty of factors that have contributed to high levels of property growth over the years, including supply and demand issues that, Wood says, are still imbalanced. “A large part of the problem is that the supply of new housing stock is insufficient to meet growing demand in our capital cities, and this shortage of supply pushes up prices,” Wood explains.
“Australia is one of the world’s most urbanised nations, with over three-quarters of our population living in major cities and the overwhelming majority in our five largest cities alone. This is why property in our inner cities continues to grow at faster rates than outer suburbs or regional Australia.”
According to ANZ Banking Group estimates, there was a shortage of more than 200,000 homes in 2009 and 250,000 properties in 2010.
Adding pressure to the national housing shortage is the fact that the way we live is also changing, with many people preferring to live alone. So, where 100 homes would have provided accommodation for 400 people two decades ago, 100 homes may only be sufficient to accommodate 150-200 people today.
“We also must take into consideration that Australia’s population is projected to grow in size from 22 million presently to 35 million people by 2050,” Wood says.
“Current available supply will continue to tighten over the coming years, especially in areas close to our major cities.With these factors continuing to put pressure on property prices affordability will almost certainly get worse. In the not too distant future, owning property may no longer be seen as a national right but a privilege.”
The good news for young Australians looking to get into the property market is that property prices “will not continue to see the same rates of high growth as we have seen over the last few decades”, Wood says.
“The bad news is, I don’t believe prices will fall,” he adds. “This is great because our risk as borrowers and investors will decrease. The better our cash flow, the more willing the banks will lend and lowers the chance you will be forced to sell your home or investment because you fall under mortgage stress.”
So ultimately, what does this mean if you want to buy your own home in the next few years? For many, buying a property on their own is going to be impossible or very difficult.
“You could consider buying a property with the intention of renting out one or even two of your spare rooms to help pay off your mortgage. We have seen this successfully done with Gen Y buyers renting out spare bedrooms to their close friends,” Woods says.
“As with all generations past and present, the ability to own your own home will mean making personal and financial sacrifices.”