Australia markets open in 6 hours 14 minutes

    +125.60 (+1.82%)

    -0.0043 (-0.66%)
  • ASX 200

    +116.40 (+1.74%)
  • OIL

    +1.11 (+1.28%)
  • GOLD

    -11.50 (-0.66%)

    -121.19 (-0.39%)
  • CMC Crypto 200

    -3.33 (-0.73%)

The ‘burning problem’ driving housing affordability crisis

Undersupply of family homes driving housing affordability crisis. Source: Getty
Undersupply of family homes driving housing affordability crisis. Source: Getty

There is a systemic issue of undersupply of family-suitable homes, and it’s driving up property prices in Sydney and Melbourne, new research has revealed.

The research follows CoreLogic’s latest Australian property figures, which saw house prices tick up 1.7 per cent in November - the largest monthly gain in 16 years.

Growth was strongest in Sydney, where prices went up 2.7 per cent, while values grew 2.3 per cent in Hobart and 2.2 per cent in Melbourne.

And with Melbourne and Sydney seeing the highest population growth in the nation, a structural problem of undersupply of family homes has led to housing unaffordability, and it’s unlikely to be resolved in the foreseeable future, RiskWise CEO Doron Peleg said.

This is also consistent with CoreLogic’s data, which found advertised stock levels were persistently low, and that housing affordability was once again worsening.

“With high population growth in both these capital cities, undersupply of family-suitable dwellings, mainly houses and, to a lesser extent, townhouses will drive property values and is likely to create strong long-term growth in prices,” Peleg said.

“What it means is supply has been unable to keep pace with strong demand. While there is a large supply of units in high-rise buildings, with many areas affected by oversupply, these are generally unsuitable for owner-occupiers and are largely rental properties.”

And it’s not just space that makes these high-rise units unsuitable; Sydney high-rises in particular have been plagued by structural defects and combustible cladding.

“For the same amount of money, investors can usually buy a house in the middle or outer rings which will present much less risk and more likely to enjoy solid capital gains down the track due to the long-term appreciation of land values,” Peleg said.

Baby boomers not downsizing

A contributing factor to the undersupply of family homes is older Aussies not downsizing after retirement unless forced to, new reports show.

Research from the Australian Housing and Urban Research Institute found 65 per cent of homeowners aged 65 to 74 chose to stay in their homes rather than downsize from 2001 to 2016.

In fact, they were only likely to downsize due to the deteriorating health or the death of a partner.

“Our research shows that older, home owning Australians are generally reluctant to downsize or spend their housing wealth over the course of their retirement,” co-author of the report and University of Sydney associate professor, Stephan Whelan said.

“When such transitions do occur, they tend to be associated with key life events that are not induced by or associated with policy settings. For example, healths shocks that require a move into aged care, retiring from the workforce or the death of a partner.”

What’s the solution?

If every resident flocked to the middle rings to purchase, housing unaffordability could become an issue there, which means a “long-term strategic solution” must be put in place to avoid another crisis.

Peleg said, overall, investors were more likely to benefit from buying houses in the middle rings and the outlying areas of Sydney and Melbourne, provided there were adequate transport solutions and access to employment hubs.

In order to avoid a crisis, he said planning, regulation and a coordinated approach between the federal, state and local governments was needed.

Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.