Australia | Aug 09 2007
By Chris Shaw
The Reserve Bank of Australia (RBA) has lifted rates and the newspapers today are full of stories about battlers struggling to repay their housing loans while juggling jobs and families, but while this is a good media story it doesn’t really fit with the real issue in the Australian housing market.
As Westpac senior economist Matthew Hassan notes, affordability in the housing sector is certainly stretched but this has not kept first home buyers out of the market as their share of loan approvals as a portion of the total is above its long-term average.
According to Hassan this high participation rate is being supported by the subsidies available to this sector of the market, ranging from the first home buyers grant to stamp duty concessions.
But the bottom line is these concessions are not enough to cover the difference from the fall in affordability levels, meaning the first home buyers have accepted the need to make other concessions such as having smaller families or starting families later in life and making higher mortgage repayments as a portion of household incomes.
ANZ Bank head of financial system analysis Paul Braddick notes the household repayment burden has certainly increased in recent years, up from 22.3% of disposable income in 1997 to around 35.2% now.
But as Braddick notes some of this can be put down to the households themselves, as years of solid economic growth has led to increased confidence in their financial outlook and so has encouraged buyers to borrow more and to buy bigger and better houses.
The other factor that has been of assistance in this regard according to Braddick is the effective deregulation of the housing finance sector, which has resulted in more products and longer loan terms and as Hassan notes allowed for lower loan-to-valuation ratios than had previously been the case.
This, plus the fact a tighter market in terms of supply and demand has driven up rents, has encouraged more people into the market and in Hassan’s view created a situation where first home buyers in particular are choosing to be more stretched financially rather than be excluded from home ownership altogether.
So yes affordability is an issue and is likely to get worse, but the households struggling to meet higher repayments on their properties have to take a share of the blame as they have geared up to buy more house than they either need or can realistically afford.
