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The ever-rising ceiling: Canberra’s continuing housing affordability crisis

Rebecca Vassarotti 12 February 2020 24
Housing affordability

Rising house prices will worsen Canberra’s housing affordability crisis, ACT Greens candidate Rebecca Vassarotti says. Photo: File.

This week there were predictions that ACT’s house prices will continue to rise, with some commentators suggesting growth could be as high as 10 per cent.

While this is sold to us as good news, it’s not. It means that Canberra’s housing affordability crisis is likely to get even worse.

With rising house prices and rents, people with full-time jobs are struggling to make mortgage or rent payments. If you are a single parent, a young person, someone who is underemployed or unemployed, or a retiree, it is almost impossible. Without significant action, more people will be unable to afford a place to call home, pushing them right to the brink of homelessness.

The experts agree that you will be in financial stress if more than 30 per cent of your income is covering your accommodation costs. If this much of your income is required to keep a roof over your head, there’s little left to cover other essentials. It means having to make choices about which other bill payment may need to be delayed. It means cutting back on meals or not going to the doctor when you are sick. It means constant worry that you may lose your home.

Everyone should have a safe and affordable place to live. Without this, people struggle to work or stay connected with friends and families. They are more likely to be affected by physical and mental health issues, and more vulnerable to violence and trauma.

While this is a community that agrees that safe, secure and affordable housing is a right, increasingly in Canberra it is becoming a luxury. Escalating house prices are feeding the problem.

As our population grows, it is also exacerbating a reduction in the proportion of social housing. High average incomes create a squeeze on those at the lower end of the market who are locked out of opportunities in the private rental market.

There are new challenges emerging too. This summer we learned some of the realities of living through a climate emergency, with extended periods of heat and the lingering toxic smoke from bushfires. It means we are now starting to realise that a safe home also means a home that is climate change ready. We need to act to ensure the right to housing refers to a home that is not a hot box in summer, has adequate heating in winter and allows you to breath fresh air. Once again, it is those at the lowest end of the market who are most at risk.

We need to ensure an appropriate standard and quality of all our housing stock, including homes used for private rental. This will need support. Climate-adaptive housing may need to include modifications we haven’t thought of before. We will need to provide support for people to transition to more energy-efficient appliances and energy sources.

And while there have been some initial efforts to look at the issue of renters’ rights, this is still an area that needs more work. There are ways that we can provide more security of tenure and one option used in other international cities is longer-term leases.

We also need to ensure that those who are at the lowest end of the market are able to access public and social housing when they need it. Despite government being the landlord of last resort, there is a need to ensure this type of support is able to be accessed at times of crisis, not months later. This will only happen with a significant investment in new public housing stock. While a significant cost, there is a need to recognise the savings to other parts of our service system – particularly in the health and criminal justice systems that bear the brunt of the economic costs of homelessness.

There is some recognition that there are problems and some tinkering at the edges, but it’s clear that old approaches won’t work. More than a year after the release of the much anticipated ACT Housing Strategy, affordability issues continue to persist.  I think we need a radical rethink of how we respond to our housing affordability issue.

Rebecca Vassarotti is a candidate for the ACT Greens in the upcoming Territory election. She is on a number of volunteer boards of community housing and specialist homelessness services.

What do you think we should do to make housing more affordable in Canberra?


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24 Responses to The ever-rising ceiling: Canberra’s continuing housing affordability crisis
Darron Marks Darron Marks 11:02 am 16 Feb 20

I think the best analysis points the finger at the reduction in capital gains tax introduced during the Howard era as the beginning of the latest housing bubble.

Self managed super being invested in housing and the consistently high immigration rate. (That is designed to increase building and construction expendature and temporarily increase our GDP statistics to make it look like our economy isn't in recession.)

The weakness of the economy and falling reserve rates are all a factor.

Given that we have not seen across the board pay increases since the GFC. The reality is that these property price rises are unsustaintable and have a direct correlation to a lack of house hold disposable income. Lower spending in retail sales and a massive increase in house hold debt and prevalence of mortgage holders relying on 5 year interest free periods that are mostly due to expire soon.

The once off $1000 government gifts are simple not enough to offset what is amongst the highest household debt to GDP rankings in the world.

Sam Dodimead Sam Dodimead 10:47 am 15 Feb 20

This conversation should focus on helping those who need it rather than this alarmist portrayal of the broader population.

'The experts agree that you will be in financial stress if more than 30 per cent of your income is covering your accommodation costs.'

On this basis where is the evidence to support Canberra households are broadly devoting anywhere 30% of household income to housing costs?

REI Australia's most recent Housing Affordability Report for September Quarter 2019 found ACT residents devoted 19.5% of family income to meeting median loan repayments, or 18.3% meeting median rents. It also found the average mortgage was $409,544 which had reduced by $3,833 Quarter on Quarter. We were the second most affordable jurisdiction for both.

This example of affordability focusses on the cost to service debt. NAB's mortgage calculator shows to borrow $410,000 at an interest rate of 3.19% the repayment would be $408 per week. Borrowing $510,000 would increase the repayment to $508 per week.

People living in ACT have the highest median weekly family income by $581. If the average mortgage size increased by $100,000 or 24.39%, the proportion of weekly family income required to service the debt increases by 3.59%. This demonstrates capacity of household budgets to absorb significantly higher property prices.

    Sam Dodimead Sam Dodimead 3:34 pm 15 Feb 20

    Assid,

    What do you propose as the solution?

    Disruption is fantastic and helps progressive agents grow their businesses. My previous comment explained how affordable Canberra’s property market is and how values could increase significantly yet remain affordable. This is a pillar of strength and provides incredible resilience to adverse market forces. It is also why when conditions become favorable the market is ideally positioned to take advantage of growth.

    Assid Uous Assid Uous 4:58 pm 15 Feb 20

    The solution is a combination of increased land supply, nested with strategic planning for transport infrastructure and the decentralisation of jobs away from the capital cities to grow smaller population centers. Decreased immigration may be needed also to get this under control quickly. And a shift towards land taxes in place of large up front payments for land (which just lines the pockets of bankers). The way this is applied moving forward needs to be mindful of the lump sums already paid to government by existing owners and their mortgage burden. In the end, what we have is a shrinking population cohort sitting on appreciating land holdings paying little tax on their gains, who didn't have to contend with the land use policies now in place that work to restrict land availability in a grossly inequitable attempt to densify cities.

assiduous assiduous 9:15 pm 14 Feb 20

1. Land Use Policy as applied by state governments is grossly inequitable and inflationary to land prices – land owners reap windfall gains, and those who do not own land pay the cost of these policies. Need to fairly share the real cost of these policies if we want to prevent urban creep & not build new cities.
2. High immigration and a complete failure by government at state & federal levels to do strategic population / city / infrastructure planning to spread employment and maintain or heaven forbid improve quality of life for Australians.
3. Wind back favourable tax treatments & exemption from pension test. Reduce land prices and increase land taxes. ACT gov actually doing one ‘tiny’ thing right (rates up), but given (1), it amounts to virtue signaling on housing affordability and is likely more about grabbing revenue.
4. 1 through 3 has led to land prices being set by what people can borrow – so the final tricks to keep prices going higher are sliding interest rates and loosening lending standards. Lower interest rates don’t improve housing affordability – only mortgage affordability. Interest rate policy is strongly influenced by global factors, best to focus on points 1-3.

Mysteryman Mysteryman 3:54 pm 14 Feb 20

Don’t worry, everyone! Andrew Barr is removing stamp duty! Isn’t that great? Well, one day he will… maybe… I mean, he promised that 8 years ago, but I’m sure it will happen eventually. And then you’ll save so much money on the purchase of a home! That $13k one-off saving (which he told us was the barrier to home ownership) will be super helpful when you’re paying $4k a year in rates (with the promise of an 5-9% increase each year!) for the life of your home ownership. You’ll have paid that $14 back within 4 years, and every year from then on will be like a bonus payment to the government!

Lucky us.

Capital Retro Capital Retro 9:16 am 14 Feb 20

There are about 40 home unit/town houses listed for sale in Braddon alone. My information is that prices have dropped at least 10% to clear the oversupply.

rspg rspg 8:00 am 14 Feb 20

The affordability crisis is caused by the labor /green govt be coming the biggest property price speculator and land developer in the territory. The leasehold system was set up to prevent speculation but this govt’s reliance on land sales for revenue, increased rates with marginal difference to stamp duty, and the highest land tax in Australia for investors all simply compound to push lower income people further and further out of the market. It doesn’t help that the govt charges 10% compound interest on late payments on rates with no payment plan available. I thought the govt was there to help?? Ridiculous housing code makes it hard to knock down rebuild to mire sustainable homes because they can’t chop down trees they would most likely replace later. And achieving sustainable fireproof homes means tens of thousands in added costs to achieve BAL rating with added costs of materials and solar panels and batteries. Costs become prohibitive encouraging Reno rather than knock down rebuild. With the highest per metre land, young people can’t even afford to build new sustainable homes, even though they want to. So not really sure how the greens are here to help???

    grim123 grim123 10:57 am 14 Feb 20

    They aren’t here to help. They show up to virtue signal and attempt to legislate absolutely everything. They are absolutely clueless, and we can only hope at the next election the last one with a seat gets booted out.

Spiral Spiral 6:11 am 14 Feb 20

You have mentioned but skirted around one of the problems, one that can be addressed:

“As our population grows”.

It should be blindingly clear to those who really care about the ecology of this country that the rapidly increasing population is unsustainable.

We need to slow that down.

If the Greens were really concerned about ecology they would be against immigration. All immigration from all countries. I’m not suggesting targeting any specific nation, culture or religion, but instead bring it as close to zero as we can.

Of course the Greens are dead against this. The environment is not really one of their highest priorities.

HiddenDragon HiddenDragon 9:24 pm 13 Feb 20

“This week there were predictions that ACT’s house prices will continue to rise, with some commentators suggesting growth could be as high as 10 per cent.

While this is sold to us as good news, it’s not. It means that Canberra’s housing affordability crisis is likely to get even worse.”

Agree completely – but a big obstacle to doing anything substantial and sustainable about this is the fact that the ACT Government’s spending is so reliant on revenues from real estate, which provides a very powerful incentive to keep prices high, and ever-rising.

The shift from stamp duty to higher property rates, which was sold, in part, as improving affordability, seems to have had the opposite effect, and has only added to financial stress due to essential household costs rising faster than incomes.

Sue McIntosh Sue McIntosh 11:47 am 13 Feb 20

I feel sorry for the "working poor" who struggle to pay rent, let alone save for a deposit and buy a house. There are too many huge houses being built on over-priced blocks, with very little to choose from for people who prefer a practical smaller-sized home to call their own. Once upon a time people were satisfied with a simple design that suited their needs, not their wants.

Aldo Milin Aldo Milin 11:34 am 13 Feb 20

The Reserve Bank blames money hungry investors for pushing home prices up which is understandable. I would also suggest that the Reserve Bank's policy of consistently lowering interest rates is facilitating that process for obvious reasons. The pot calling the kettle black methinks...

George Brenan George Brenan 9:49 am 13 Feb 20

While the policy remains in place that all sales are to be based on market value rather than having regard to costs, there is a conflicted interest in managing releases so as to maximise returns. The public interest, while covering costs and maintaining quality, is to limit prices so as to maintain and enhance affordability. Current affordable housing policy is a mere sop and a bandaid

grim123 grim123 9:43 am 13 Feb 20

Maybe pay attention to the part where the latest round of “Tenants rights” drove up insurance costs for landlords, and limited their ability to raise rents to cover that and the additional cost of Barrs ever increasing rates.

No landlord is wearing those costs, nor should they be expected to. Residential property is an investment and needs to make a return. Increased costs will be passed on to tenants. Blind Freddie could have seen this coming.

    JS9 JS9 9:08 am 14 Feb 20

    Que? On one hand your whining that landlords are limited in their ability to raise rents, then on the other they are passing them on to tenants. So which one precisely is it?

Stephen Saunders Stephen Saunders 7:50 am 13 Feb 20

(1) fast rising population and (2) fast rising house prices have RBA backing and are fundamental to Morrison-style “jobs and growth”.

Reflexively, Greens support the first, but oppose the second.

Acton Acton 7:09 am 13 Feb 20

There is a need to ensure the ACT Greens/Labor coalition are held to account for the housing unaffordability they have caused.

    Maya123 Maya123 9:22 am 14 Feb 20

    No, that fault lies with the Federal Government and the immigration levels. States and Territories are then left to deal with it. Want to blame someone, blame where fault lies, the immigration levels which swell the demand for houses, and that is at Federal level.

    Mysteryman Mysteryman 3:56 pm 14 Feb 20

    The Federal government didn’t drag their heels on ACT land releases in order to artificially inflate the market, Maya. That was the ACT Government.

    JC JC 5:00 pm 14 Feb 20

    Correct. And the evidence of that can be seen 300km up the road where housing is even more unaffordable than here in Canberra. Even 50km out of town it is bloody expensive.

    bj_ACT bj_ACT 7:22 pm 14 Feb 20

    Outer suburbs of Sydney have a lower median house price than Canberra.

    Sydney is a massive city and worldwide the biggest cities in a country have high house prices. So there shouldn’t be any surprise in their high house prices.

    Canberra is a bit of an anomaly worldwide for a city our size,
    surely you can’t defend the ACT Governments housing policy over the last decade.

    Other massive Labor supporters (such as you are) have questioned the Governments housing policy.

    JC JC 8:14 pm 16 Feb 20

    Spring Farm, outer suburb of Sydney.:

    Near new 4 bedroom on 450m2 block, $700,000

    https://www.domain.com.au/13-argent-street-spring-farm-nsw-2570-2015990982

    Similar house size but smaller block, similar age 4 bedroom in Bonner: $640,000

    https://www.domain.com.au/bonner-act-2914-2014962207

    I rest my case.

    chewy14 chewy14 7:39 pm 14 Feb 20

    Anyone that thinks the federal government is the cause of higher house prices in Canberra because of “immigration” is deluded.

    The ACT governments own land release policies are almost solely the cause.

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