What Causes Low Housing Affordability – The Real Issues

What Causes Low Housing Affordability? Low Wages is a Big One!

What causes low housing affordability? This is a question people have been asking since this current property boom began.

Perhaps it isn’t the right question.

Perhaps it is not “what causes low housing affordability?”  but “why can’t people afford houses?” Why do we have cops that couch surf?

Housing Affordability – The Real Issue and What Can Be Done About It. DF Partners, May 2017

Only 8% of Australians aged between 18 and 35 (the millennials) believe they will be financially better off than their parents (Deloitte Millennial Survey 2017). Housing affordability is top of mind for many Australians in this age group resulting from national house prices accelerating ahead of national income.

In this article Development Finance Partners’ (DFP) Senior Credit Executive Stephen Turner discusses the dynamics behind the issue and assesses the potential solutions.

What Causes Low Housing Affordability? The Gap Widens!

“The supply of affordable housing will be the underlying profit driver of real estate investment in the foreseeable future. You cannot afford to miss this wave” Gary FitzGerald – Director MaxiLife Achievable Housing Limited

Deloitte Access Economics shows the gap between home prices and income in the following graph.

What causes low housing affordability


There’s been gaps before but it has worsened a lot in the last four years

This price growth has been driven by an increase in both owner occupier and investor demand since Jan 2014….. the year on year credit growth in investor housing has averaged around 8% for the past three years compared with around 6% for owner occupied. via dfspartners

What is happening to fix the housing affordability crisis?

Ask “what causes low housing affordability?” and the response from government is deafening in its silence.

What now follows is a series of “emotive” responses which run the risk of being token solutions or even worse still, exacerbating the problem. You have regulatory authorities curbing credit to the property market, Banks taking a view on the property cycle and political buy-in with absurd policy initiatives that may well have disastrous effects on the property markets.  via dfspartners

When politicians get involved

Politicians invariably protect their own jobs first. The measures mentioned above will;

  • Force rents higher
  • Reduce Housing Supply
  • Increase demand for housing, pushing up prices

The only way to tackle affordable housing is to treat the disease not the system

what causes low housing affordability

“Our response must first strive to remove obstacles that restrict supply responding to genuine demand.”Treasurer Scott Morrison, April 10, 2017

There is no doubt that it is becoming increasingly more difficult for first home buyers to enter the market. Prices in Sydney and Melbourne have clearly outstripped affordability as wages have been growing at a much slower pace. There needs to be rational policy initiatives to balance supply and demand. This may include placing further restrictions on non-residents purchasing property in Australia as this has had an impact on the price of new stock in particular.

Stephen Turner B Ec. is a Senior Credit Executive with DFP. Housing Affordability – The Real Issue and What Can Be Done About It. DF Partners, May 2017



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