The Housing Industry Association and Commonwealth Bank are the commercial entities behind the much-quoted Housing Affordability Index (HAI). Each, understandably, has a business agenda to further and it has been suggested that not enough journalistic scrutiny is applied to the use of information contained in HAI reports.
In last month’s edition of the HAI it was erroneously claimed that the median house price had risen 29 per cent in the twelve months ending March 2010. However the country’s two leading data houses, RP Data and Australian Property Monitors say those figures are 16 and 12.5 per cent respectively.
The May report led to a handful of headlines nationally such as ‘First-home Buyers a dying breed’, ‘First-home buyer market collapses’, The Great Australian Dream is dead’ and a range of articles suggesting that affordability was at an all time low. It simply isn’t.
One commentator who saw straight through the HIA/Commonwealth report was Terry Ryder, founder of Hotspotting.com.au. In the article ‘Affordability crisis an industry fiction’ appearing in The Australian, Ryder pointed out that the basis of the HAI index relies upon average First Home Buyers spending $500,000 on their first home and that households earning less than $125,000 per annum can’t afford a typical home.
The Australian Bureau of Statistics, an institution who arguably receives no commercial benefit from producing accurate statistics, says the average first-home buyer borrows just $283,000 but the HIA says that same buyers pays $498,100 for the typical Australian home. That’s a disparity of $215,000 – big difference!
Ryder points out that RP Data says median house prices for the major Australian cities are:
• Sydney – $500,000
• Melbourne – $452,000
• Brisbane – $439,000
• Perth – $480,000
• Adelaide – $385,000
He then questions how the Commonwealth Bank and HIA find it believable to suggest that first-home buyers across Australia are paying more than the median house price in four of our five largest cities. Who, after all, would be buying the homes that are much cheaper than the median price, if not investors and first-home buyers?
The answer, he finds, lies most likely with their mutual commercial interests. The HIA uses the index to pressure Government to make decisions favourable to developers and builders, claiming that “exhorbitant infrastructure charges and an overly restrictive planning system continue to fuel Australia’s affordability crisis”. The Commonwealth Bank produces reports suggesting there are many affordable options for first-homes buyers within 10 kilometres of capital city CBD. On which particular planet? Few credible sources would direct first-home buyers without significant additional resources to seek property within 10 kilometres of Sydney or Melbourne’s CBD. Could it be that the Commonwealth simply wishes to increase the expectations of consumers with regard to what constitutes a ‘normal’ or ‘average’ level of debt?
Macquarie Bank’s head of property research, Rod Cornish, says such shallow analysis is misleading the public. His formula for measuring affordability goes much further than simply comparing average incomes with median house prices.
‘These indexes are quite simplistic – they compare houses to wages. That’s not how purchasers look at it and it’s not how most banks look at it. There is a tipping point at which affordability starts to affect the market and we are nowhere near that point in any of our capital cities’ he said.
While prices have risen over the past twelve months, with the exception of small falls in Perth and Brisbane, a recent decline in auction clearance rates would suggest pressure experienced by buyers in the marketplace has eased somewhat. However, with relatively low, stabilised interest rates, low unemployment of 5.3 per cent, economic recovery and a GDP growth rate of 2.7 per cent, as well as a lower Australian dollar increasing the buying power of expatriate Australians, it’s hard to see where there’s a crisis of affordability.
The problems remain familiar. High levels of immigration are stimulating demand, there’s an under-supply of housing, there’s structural inflexibility in the planning process and these factors do drive up prices. However, prices growth has slowed and, with the many Government incentives and overriding market conditions, homes remain at some of the most affordable levels in decades.
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Tagged: affordability, australian real estate, commonwealth bank, interest rates, property market updates
