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There was a lot of press coverage during the last election about Australian housing affordability and the new Rudd government has promised to come up with a plan. What what can they really do? Here are I believe the major contributors to the problem. Many of these are the unintended consequences of government policies and societal trends. There is no easy solution and any politician who says there is an easy solution is dreaming. Unrealistic expectations I grew up in a 2 bedroom timber in Brisbane. It was 12 squares (including patio), had an external laundry and a lovely big back yard with a swing. No double-lockup garage, no rumpus room, no games room, timber floors, no pool, no aircon, no fans, just a paintedwooden house with a Hills Hoist and some great trees. It worked just fine. No Monty Python luxury sketch here. The impression I get these days is that young people expect to buy a residence of at least equal standard to what they grew up in. You know, brick veneer, carpets, four bedrooms, aircon, and so on. What I saw as luxuries to be added over time, these kids see as the minimum fit out. The social status of tradesmen Good tradespeople are very skilled, rare and in short supply. For some strange reason over the last 30 or so years Australian society has not encouraged school graduates to get a trade. University attendance and a job wearing a suit is seen as the life goal to aspire to. The result has been a dilution of the trade gene-pool with kids who could have been outstanding plumbers, carpenters or bricklayers, becoming very average white collar workers. The recent property and mining boom has seen tradespeople’s yearly incomes skyrocket. Good luck to them, booms come and booms go. I’ve heard stories of recruitment firms driving around residential building sites stalking tilers. They ask them what their hourly rate is, offer to double it, then produce an employment contact. Unfortunately you need well paid tradespeople to build residences. This building now costs more because the input costs are higher. The GST didn’t help, but it is only a minor factor. The Cost of moving residence Stamp duty, agent fees, moving costs and the other associated human and capital costs of moving to a different type of housing encourages people to update what they have rather than sell up an move. This means people are doing additions rather than moving. This drives up the cost of existing housing and limiting the supply of first homes. Similarly, these human and capital costs of moving also encourage people who could quite happily live in a smaller property to rattle around in what they have because moving is too hard and too expensive. They also may wish to hang on to their house with the goal to handing it on to their children when they eventually die. Increasing divorce rates since 1975 Currently 40 percent of Australian marriages are expected to end in divorce. The effect of this is that you end up with a lower average person to property ratio. Both halves of the splitting couple want their own house. Fair enough. But for the period that each half is single and living alone (or with their kids), there is one less property in circulation. At a very rough guess I expect that for every divorce in Australia there is one less property in circulation for an average period of at least 5 years. In 2006 there were over 51,000 divorces. That’s over 51,000 people looking for a new place to live. Longer life expectancies Because people are living longer there are less properties coming onto the market through deceased estates. Obviously, if a group of people stay in their property for an extra 15 - 20 years there are less properties in circulation. Once again, longer life expectancy is a good thing, but it does limit the number of properties coming on to the housing market. Policy to keep older people at home To compound the last factor even further, the Australian government actively encourages older Australians to get older at home rather than use up beds in aged care facilities. They do this because it is far more cost effective for the taxpayer, and is popular policy and gives older people a better quality of life. Peak Oil and the cost of travel Rising oil prices and suburb population density growth means that it costs more money and time for people to travel to and from work. The cost of transport is pushing up the cost of housing close to work and city infrastructure. How would you invest your money. Say you had a choice between buying a home for $500,000 5 kms away from work with good access to public transport and buying a house for $350,000 25kms from work. With no access to public transport? What would you choose? Many people might stretch the $500k option knowing it will save them 60 minutes per day in travel time, $100 per week in private transport costs (petrol, wear and tear, rego, insurance and so on), and they will have an asset that will appreciate at far greater than the rate of inflation. The trouble is that as houses in inner cities increase in value, there is a knock-on effect out in the outer suburbs. Even suburbs with poor infrastructure.
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John Hacking is the owner of Australian Blog. He is also Product Manager of a Australian SEO training company.
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