How can housing become more affordable in Australia?

Highlights

• Over the past few decades, the number of Australians owning a home has declined swiftly.
• While increasing the supply of housing is a long-term task, it is the need of the hour for the property market.
• A combination of measures is required to bring back affordability into the housing market.

Soaring property prices have created a largely unpalatable market for an average buyer. Prices have reached unprecedented highs and are now boiling down on homebuyers, especially those buying a house for the first time. The number of Aussies owning a home has declined swiftly over the past few decades, making the argument stronger that buying a home has become increasingly difficult in Australia.

As interest rates fell after the pandemic ensued, property prices rose exponentially, creating a large boundary between those who own at least one house and those who do not. Many potential property buyers were thrown on the other side of this boundary as the RBA unveiled monetary stimulus, owing to a substantial rise in property prices. Thus, the past two years have been extremely stressful for those living on rent or have not been able to utilise the record-low interest rates so far.

GOOD READ: Inflation on the rise, five sectors to watch out for

What has stemmed from these strenuous circumstances is looming affordability concerns that have shed light on the disarray of wealth. Although property investors have continually participated in the real estate boom, several first-time homebuyers could not even enter the market. As a solution to this contrasting scenario, there are certain measures that the government can take to ensure that prices are brought down to more affordable levels.

Setting up a dwelling supply target

No doubt, the shortage of housing supply is a pressing issue and needs to be addressed soon. Policymakers have taken certain supply-side measures to prevent property price inflation. However, prices seem to have seen a little impact of these measures over recent months.

As of now, increasing the supply of housing appears to be the only solution. However, it is a long-term task and should be done as efficiently as possible. Setting a deadline for constructing a set number of dwellings can be an effective way to move ahead. However, simply constructing more houses may not solve the problem.

A key factor enabling property price cooldown can be a differentiated disbursal of dwellings based on the existing income groups. This can make the homebuying process more inclusive, allowing retirees and other low-income group individuals to buy a house well-suited to their budget.

ALSO READ: Is the Australian property market boom here to stay?

Establishing a public housing developer

Australia can follow its neighbouring country Singapore and establish a public housing developer that can help buyers utilise their superannuation funds to purchase a house. Singapore’s public housing developer is named the Housing and Development Board, which effectively provides mortgages and allows individuals to use their retirement savings to buy a house.

Through this unique settlement, Australians can either use their superannuation funds for deposits or repayments against a loan. Meanwhile, eligible first-time homebuyers can be provided property at a discounted rate than that is prevailing in the market. Such public housing developers can help set up solid dwellings within a country, as was the case with Singapore. However, the attractive scheme comes with a minimum stay of 7 years, under which buyers may not be able to rent out the property.

Reducing monetary measures

An obvious answer to the ongoing property boom is revising interest rates to higher levels. Record-low lending rates have encouraged a mass population of buyers to take loans, especially in the real estate market. An increase in interest rates, along with existing contractionary policies, can allow the property market to make a smoother transition towards lower prices.

While the RBA has corrected its inflation expectations for this year, it is still unclear if it would wait until year-end to execute a rate hike. Some experts are hopeful that a rate hike can occur by mid-2022. However, the true impact of increasing cash rates can only be known once the RBA goes ahead with the policy measure.

Meanwhile, the RBA’s condition of a revival in wages for an interest rate hike is unlikely to materialise in the short term. Thus, an effective solution can be to focus on other efficient measures of bringing back affordability into the market. The present circumstances highlight the need for income-appropriate dwellings that can better cater to the existing affordability concerns.

INTERESTING READ: Australia to reopen borders - things to look out for!