4 October 2007

Housing affordibility crisis hits Canberra hard

| GnT
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It’s interesting how the “housing boom” is now referred to as the “housing affordibility crisis”.

Rents around the country, but particularly in Canberra, have soared driven by demand and the increase in property prices. I feel for anyone looking to buy or rent, but as a home owner I feel secure that this is good news for me.

If you don’t think you can afford your own home, you can still get a loan from this mortgage broker. He secured a $400,000 loan for an unemployed teenager. No wonder default rates are so high.

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VYBerlinaV8...the_original_and_best9:00 am 08 Oct 07

Bear in mind also that it’s very easy to make comparisons about how much more expensive houses are when you compare to a point where they were comparatively VERY cheap (ie late 90’s), because the local market had gone nowhere for almost a decade.

VYBerlinaV8...the_original_and_best8:59 am 08 Oct 07

Gen Y are very interested in home ownership – the problem is that the homes they are interested in are the ones in really nice suburbs, or the city, or with nice views. Typically luxury townhouses or units. Of course, there are a few Gen Y people who are more realistic, and many of these people have been able to buy a property (typically a fairly modest one), happy in the knowledge that as their income and equity increase they can ‘trade up’ to something more desirable later. Sorta the same approach every other generation up until now has taken.

The ‘powers that be’ keep saying Gen Y are not as interested in home ownership . . . bollocks. It’s just that they have pretty much given up on aspiring due to unaffordability.
Apparently (according to SBS’s Dateline this week), houses have gone from double the annaual average income, to 7 – 10 times the annual income.
A lot of the stability of Australian society in the last 40 years has been because of relatively high home ownership rates.
Time to factor in social stability when they look at housing policy, instead of solely focusing on economics. It is very bad for households to be forced to live with the uncertainty of having to move all the time.

VYBerlinaV8 now_with_added grunt12:47 pm 05 Oct 07

Is that a piece of the sky falling on my head?


VYBerlina be careful around here with your statistics, research and considered reasoning.

What we want is gut reactions and idle speculation. It’s much easier than thinking.

It is an interesting term “affordability crisis” Most houses that go on the market eventually sell. Therefore they are affordable, by someone.
Just not me.

VYBerlinaV8 now_with_added grunt9:06 am 05 Oct 07

I’d be careful comparing us to the US mortgage crisis, because in the US, about 17% of the mortgages relate to the sub-prime market (ie lo-doc, no-doc), a large amount of which is people who can’t really afford the loan. In Australia, the sub-prime mortgage component of the market is only about 4.5%, which reduces our exposure. Also, many of these loans in the US are ‘adjustable rate’, which means for the first X years they are very low interest rate, but then the rate increases dramatically (by several percent) when the honeymoon period expires. This is very different to the Australian market, and like the sub-prime products, has allowed many people who really can’t afford to get into the market buy a house, which they subsequently lose a few years in.

In the US and UK, about a third of the population owns all the property. Everyone else rents, and the rental cost is pure supply/demand. This is the direction Australia is likely to go, I think.

Bottom line – don’t wait for prices to drop (because there’s a good chance they won’t – especially in somewhere like Canberra), get in as soon as you can and start reducing the size of your loan.

You know the mortgage crisis that’s hitting the US at the moment? The one that put the UK Northern Rock bank into such a crisis?

This is what it looks like, just before the fit hits the shan.

sexynotsmart8:20 pm 04 Oct 07

It’s the “unemployed teenager” story I have trouble believing. I ws astounded by the number of hoops I had to jump through to get $100,000 (secured against my almost-owned-outright principal residence) to bet on ASX.

Next time I try to leverage equity I’ll declare myself a dropkick layabout.

GnT’s right about the equity advantages. Since 2000 I’ve gone from 15% to 80% owning my house, despite only halving the original loan amount.

I only recently made the decision to access the equity and that’s because interest rates are still low. If they go past 10% I’ll be selling shares faster than you can say “Christopher Skase”.

Buy a farm.

VYBerlinaV8 now_with_added grunt2:28 pm 04 Oct 07

Housing costs have risen over the last 8 years or so, but it’s worth remembering that during most of the 90’s the housing market was very stagnant, and significantly underpriced (both cost to buy as well as rent). The boom of 2001-2003ish took care of that. Rents follow house prices, but with a lag. What you are seeing now is rents catching up to housing prices.

The other factor here is supply. At the moment, many parts of Australia, including ACT, are undersupplied with housing. Thanks to crappy land release policy, housing is expensive to develop and build, so supply is not keeping up with demand. ANY demand side solution pushes up the market. Fundamentally, housing is priced according to demand, which can only be modulated by supply.

mlm is correct. Prices are going up everywhere, so people are really no better off, unless they’re going to sell up and live in the boonies………

Snahons_scv6_berlina2:05 pm 04 Oct 07

GnT thats only useful if you plan on investing that cash into other revenue generating income (assuming the return on this investment is greater than the cost of “borrowing” it against your mortage’s interest rate)

I went to school with this guy.

On one hand I kind of feel sorry for him, on the other hand I can’t believe that he was stupid enough to blow $180,000.00 trying to do the right thing with the money.

He could’ve found a hobo blanket and drank a $30 bottle of booze everday for the next 16 years and been happy.


Oh boy, you’re pulling my leg right?

But I’ve benefitted from the increased equity in my home. I can refinance and get cash in my pocket.

mlm for Treasurer.

Just being a homeowner doesn’t necessarily make an increase in prices or rents any good for you. If you are selling to buy again in the same market there is no benefit, and quite possibly a slightly increased cost.

The only people who would really derive any benefit from the increases are those who plan to sell their homes at the increased value and move to a lower cost housing market, or those who purchased property as an investment, and as such have no obligation to buy back into the same market if they choose to sell.

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