Speaking at the Housing affordability event in Melbourne, Dr Yates provided an evidence-based, forward-looking presentation on housing affordability that looked at past trends as well as future solutions.
“Today’s housing affordability problems won’t go away when the current house price boom goes away. They have been a long time in the making and they will take a long time to solve,” she said.
She said the current housing affordability crisis has been created from the “interaction of increasing demand with long-run supply constraints that generate the upward trend in real house prices”.
“In Australia, long-run supply is constrained because of our urban settlement pattern. Two thirds of our population live in a capital city and 40 per cent live in Sydney and Melbourne alone,” Dr Yates said.
“Structural change, with a shift away from agriculture and manufacturing to a service based economy, has contributed to an increasing proportion of the population living in urban areas.
“Prices increase most in locations where people who have the biggest capacity to pay want to live, and where there is little vacant land.”
She listed three major implications of these trends. First, she said many new households cannot afford to enter the market.
“Increasingly, many new households are unable to afford to buy. The borrowing capacity of a middle income household has failed to grow at the same rate as the cost of a median priced dwelling,” she said.
Secondly, she said that “low-to-middle income households who are still becoming home purchasers are moving to the fringes of our biggest cities.”
However, she said some that could afford to buy on the fringes may instead choose to rent in more desirable, inner-city apartments – priorisiting lifestyle over home ownership. The result of these the first and second points has led to “a marked decline” in home ownership rates among younger people.
“Home ownership rates for under-35s, which were as high as 60 per cent from the 1970s to mid-1980s, are currently lower than 40 per cent according to the latest survey data,” Dr Yates said.
Thirdly, she said a consequence of middle and higher income households choosing to rent in inner city homes has pushed out renters on low and middle incomes to city fringes, where they may have to spend more of their pay on commuting or take less well-paid local jobs as a consequence.
“They are being forced to make location choices that are likely to reinforce their current income status,” Dr Yates said.
“My concern is that, because of the way in which our current housing system operates, we face the danger of a downward spiral in terms of income and wealth inequality in Australia which, as suggested by the OECD and the IMF, will work against the jobs and growth agenda set by our current government.”
She said we can expect these demand pressures to continue for at least another 40 years, so long as supply restraints remain.
She said the main effect of demand-side policies the Turnbull Government is inacting will be to “enable marginal buyers to purchase bigger homes in better locations”.
“A similar observation can be made regarding some so-called supply-side measures,” she said.
However, she said some of the current proposed measures would prove beneficial.
“An example is the current proposal to establish a National Housing Finance and Investment Corporation to encourage private and institutional investment in affordable housing,” she said.
“This is a welcome initiative but will only be effective if sufficient resources are made available to fund the gap between what lower income households can afford and the cost of providing them with adequate and well-located housing.
“Policies need to ensure that affordable housing is provided in locations where it is needed – in locations that provide access to employment opportunities as well as to basic services.
“Inclusionary zoning policies requiring new developments have a defined proportion of affordable housing make a good start in this direction. However, if this is to be a long-term solution, caveats will be needed to ensure that housing so provided remains affordable, not just for five or 10 years, but in perpetuity.
“In general, incentives to encourage private involvement in an affordable housing sector will be successful in the long run only if there are mechanisms in place to ensure that affordability is sustained over time.
“I’ll conclude with reminding you of the words of the Federal Treasurer in his post-budget speech to ACOSS: ‘Fairness is the first and fundamental role of government’.”
In August CEDA will be releasing a policy perspective on Housing Australia, which will look at options for sustainable affordable housing. Click here to read more about the upcoming publication.