House prices have increased by 86% in Melbourne over the last 30 years. Over the same time span, house sales have increased by just 11%.
“It’s a problem that’s been around for a long time and isn’t getting any better. I’d certainly say that our housing market is unaffordable,” says Kate Raynor from University of Melbourne’s Transforming Housing project.
She says there’s no easy explanation for Melbourne’s lack of housing affordability.
“We do have a dramatically increasing population and at the same time we don’t have house supply keeping up with that. That’s your classic demand-supply equation that’s causing price increases in the market, but it’s not just that.”
She says it is easy to blame increasing demand for housing, but this ignores other key factors pushing house prices up, such as tax incentives for investors like negative gearing.
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Some housing experts, economists and AHURI’s (Australian Housing and Urban Research Institute) 2014 housing report, say decline in rates of home ownership, the bulk of which was in the 1980s, is exacerbated by populist housing commentary. Some say it’s simply an issue of supply not meeting demand.
Kate says the supply argument can be a bit of a trap, as simply increasing the supply of housing will not fix the affordability problem.
“[There is a] massive increase of supply coming onto the market at the moment in the form of apartments in the CBD and I don’t think that’s contributing to housing affordability, I think that’s the kind of product that’s aimed at investors and isn’t necessarily improving affordability for first home buyers or for renters.”
Demand for housing, especially affordable housing, will not cease anytime soon. Melbourne’s population increased by around 15% between 2006 and 2001 and continues to steadily increase.
“It’s not just about increasing supply, its about being clever about what type of housing you supply and the price you’re supplying it at.”
“Just increasing supply isn’t going to push it enough to make a dramatic increase in affordability,” Kate says.
AHURI says increased house prices have seriously affected lower income households and younger households’ opportunities for home ownership.
“Whereas in 1981 the home purchase market was almost split 50-50 between single and dual-income households, by 2011 over 80 per cent were dual-income households and this was the case for both age cohorts.”
In response to Melbourne’s lack of housing affordability we are purchasing more townhouses and apartments and buying in outer urban areas (moving further away from the city).
Over the last 30 years, apartment and unit sales in Melbourne have increased by over 50%.
[infogram id=”65530778-4056-4642-9bc8-8a7639915c5d”]Kate Raynor from Melbourne University’s Transforming Housing says young people are also living at home and renting for longer.
“I think we’re moving into a situation now where people are more likely to rent long term… the housing system in Australia at the moment is horribly swayed in the direction of home owners, and tenets don’t have a lot of power and they don’t have a lot of options.”
Lower income and single income households are hit hardest she says, “people on lower incomes can’t afford housing in Melbourne and it’s a problem that has been around for a long time and isn’t getting any better.”
Melbourne’s apartments have increased by around 79% in price, over the last three decades.
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“What has changed is not so much the housing market but the financial markets,” says Professor Jago Dodson from RMIT’s Housing and Urban Research Centre.
“We’ve seen deregulation of the financial markets… the investor sector has grown massively in that context with greater availability… we’ve added an additional sector of finance to our housing market which has added to the demand for housing and has enabled that group of investors to be better positioned than young people.”
House prices in Melbourne have increased by 50% over 10 years, leaving first homebuyers worse off than their parents.
Kate Raynor, from the Transforming Housing research project says, “I think we’ve got to the point of house price increases where we’re not going to go back to the situation our parents had where the cost of housing to income ratio was the same, I think those days are gone.”
