Housing affordability is a hot topic in Sydney, which has been ranked the second most unaffordable major housing market in the world by Demographia’s 13th annual International Housing Affordability Survey. With the median Sydney dwelling price doubling between early 2009 and late 2016 according to CoreLogic, it may not come as a surprise that Sydney is now less affordable than global metropolises like New York and London.
“Fixing housing affordability” in Sydney is one of the top priorities of the new premier of New South Wales, Gladys Berejiklian. Given that housing affordability is an economic productivity concern as well as a social problem, it’s good the issue is getting the attention it deserves. But what can be done about it? First we need to understand the cause of it.
The cause of Sydney’s housing affordability problem varies depending on who you ask. The Demographia survey blames Australia’s urban containment policies, which curb the growth of urban sprawl by encouraging greater density in existing housing areas rather than opening up new sites.
With more than 4.8 million people living in the greater Sydney area out of 7.7 million people in NSW overall, it’s hard to deny there’s a density issue. The survey notes that all of Australia’s housing markets have severely unaffordable housing and all have urban containment policy. It’s a unique issue for a country with as much land as Australia.
The issue of housing affordability has been repeatedly handballed between state and federal governments. The federal government says the states are to blame for restricting the supply of land which has pushed up prices of existing stock. Median land prices have indeed been rising consistently since mid-2013, pushing the overall value of housing higher.
CoreLogic research director Tim Lawless has also noted that rising land prices is one of the primary drivers of broader housing market growth and as a result, a key contributor to housing unaffordability across Sydney. The median dollar value per square metre of vacant land in Sydney was recorded at $927. This is 32 per cent higher than the next most expensive capital city Perth, where it is $701 per square metre.
Decline in Mortgage Rates
Dr Andrew Wilson, a real estate analyst and senior economist for the Domain Group, says a key driver of surging house prices in Sydney is the steep decline in mortgage rates that has provided home buyers with historically favourable borrowing conditions.
However he argues the latest data from ABS reports indicates that housing affordability for home buyers in Sydney is improving as underlying price growth has declined. The proportion of income required for the average home loan repayment has improved, falling to the lowest measure since June 2015.
Although these trends look positive, first home buyers in Sydney continue to face a bleak outlook as a result of the strong growth in prices in recent years. First home buyer loans in NSW are hitting record lows, with 9.2 per cent less loans approved in 2016 than the previous year.
Government Policy to Drive Affordability Solutions
The solution to easing the affordability issue also varies depending on who you ask, but everyone agree that government policy is the key. Federal Treasurer Scott Morrison is considering a government-backed financing model to help spur construction of new homes and is currently examining the success of similar policies in London.
In the last federal election campaign, the opposition proposed limiting negative gearing, claiming the practice locks out prospective new home buyers. The Coalition opposed the policy claiming it would increase rents. Meanwhile, Ms Berejiklian plans to unveil policies about how to tackle the issue “in the near future.”
According to CoreLogic, the underlying drivers of high land costs need more scrutiny. Government policies around land release and headwork costs are central to the debate around housing affordability and the cost of vacant land. If there is a way to ease the affordability of housing, reducing red tape around land may be a way.
About New Living Homes
New Living Homes specialise in designing and building desirable and affordable homes in Sydney. We offer a range of home designs and house and land packages to make planning and buying your first home as easy as it can be for first home buyers.
To learn how we can help you build an affordable property in New South Wales, call us today on 1300 189 933 or contact us online.