Australia’s Housing Affordability Crisis -- Similar to Canada's: What to do about it?

Australia’s Housing Affordability Crisis

by Judith Yates, professor, economics, University of Sydney 

The Australian Economic Review, June, 2008

This very helpful and insightful overview, written just before the global financial crisis, provides an excellent analysis of what is meant by the popular / media term "housing affordability crisis" and what should be done aout it.

The Canadian and Australian housing systems are very similar.  Much, if not all of what Professor Yates writes about Australia is relevant to Canada's housing situation.

While some home owners face financial hardship due to the large gap between their incomes and housing costs, it is mainly renters who have difficulty accessing appropriate and adequate housing within their household budgets.  

"Although affordability problems for purchasers tend to receive most media attention, the largest group of households experiencing affordability problems are not purchasers but are households in the private rental market. For many of these households, home ownership is not something they can even aspire to."  p.201

"While 16 per cent of all households had high housing cost ratios in 2002–03, more than 28 per cent of lower income households were in housing stress.For lower income private renters, however, the incidence of stress was 65 per cent. For lower income purchasers it was 49 per cent." p.207

While the problem is not new, it is worse now than in the past.  The global financial crisis will likely make it even worse for most renters and for recent house purchasers.  

The key part of the solution is to deemphasize the investment use of residential real estate.  Providing special tax breaks for ownership helps inflate the housing market, harming many, especially lower income households.  

Housing policy in most countries has not been tenure neutral -- which means that ownership and rental are not treated equally by the regulatory, tax and subsidy systems of all levels of government. 

Housing policy needs to focus on inceasing "the supply of wel located affordable rental housing to meet the needs of those on lower incomes who are likely to be long-term renters." Profesor Yates concludes: "A strategic rental housing policy framework is essential to foster adequate and stable levels of investment in rental housing."

The full article is available on the internet.

From the conclusion:

      "This suggests that the most effective long run solutions to housing affordability problems lie in addressing the underlying determinants of demand and supply. With continued pressures from increased population growth and real per household incomes, demand is likely to be reduced only by reducing the attractiveness of housing as an investment asset. Demand side subsidies, such as the untargeted first home owners grant to first homebuyers are unlikely to be effective.

       "The second key observation is that the media tendency to define affordability problems by high or increasing housing cost ratios for purchasers is largely misplaced. Most home purchasers have relatively high incomes and are not forced into the undesirable trade-offs that lower income households face when their housing costs increase. There are significantly more renters than purchasers in housing stress and the incidence of housing stress is significantly greater among private renters. Many of these households face the prospect of never being able to gain access to the economic an social advantages provided by home ownership. 

        "This suggests that a change is needed in the direction of Australia’s housing policies away from those that focus on home ownership and towards those that increase the supply of well located affordable rental housing to meet the needs of those on lower incomes who are likely to be long-term renters. A strategic rental housing policy framework is essential to foster adequate and stable levels of investment in rental housing."