No end in sight for Australia’s housing crisis

It’s been widely reported that Sydney and Melbourne are right at the top of the list of the world’s most unaffordable locations, but despite talk of a property price collapse, a recent report warns that there is ‘no end in sight’ for Australia’s housing affordability crisis.

The International Demographia International Housing Affordability Survey data show that by the third quarter of 2015, the median price for a house in Sydney was 12.2 times the median household income, making it the second least affordable location of all 86 major markets surveyed.

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Melbourne came in as the fourth least affordable location globally.

A recent report published by the Australian Population Research Institute warns that the extent of mortgage debt is dangerously high, reaching $1.4 trillion and growing by $100 billion a year.

“The average level of debt per Australian household (most of which is mortgage debt) is equivalent to 160 per cent of the mean annual income of each household. This is higher than almost all other developed countries,” the report stated.

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“It is unlikely to be sustainable. A recession or a rise in interest rates would undermine the capacity of mortgagees to service their debt, with profound wider economic implications.”

The Aussie affordability crisis, which the report attributes to federal government policies on negative gearing, capital gains tax and migration, and short-sighted planning by state governments, is only set to get worse as competition intensifies.

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“This is because of the increasing demand from new resident households and new migrants in the face of limited growth in supply and the increasing share of established detached houses that will be occupied by households aged 50 or older,” the report said.

“The surge in the supply of high-rise apartments will not address this shortage.”

As a result we may begin to see residents depart to cheaper locations, while another possibility is that migrants will bypass Melbourne and Sydney altogether because of the cost of housing relative to other Australian locations.

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Plenty of commentators in Australia have prophesised that a housing price bust in Australia is inevitable.

“However, as would be gathered from our analysis, such is the likely continuing shortage of family friendly housing in Sydney and Melbourne that it is hard to see a bust on the scale predicted,” the report said.