Despite recent price drops of between 5 and 30 per cent, Aussie real estate remains amongst the most unaffordable in the world. A comparison of median house prices with median household incomes found that the Sunshine Coast in Queensland was the least affordable area, ahead of the Gold Coast, ranked third, Sydney, in fifth place, and Brisbane at number 28. If you want to buy a house on the Sunshine Coast, and work locally, you’ll need to spend 9.6 times the median wage to purchase a home. Properties around Noosa Heads, one of the Sunshine Coast’s most popular tourist destinations, have plummeted in value over the last 12 months. It may not be too long before other towns along the coast also drop, though I doubt they will drop as severely as they have in overpriced Noosa.
So how did house prices get to be so high?
According to the report by Demographia (click here to view the Demographia International Housing Affordability Survey 2009), severe regulations on land use (such as urban boundaries) pushes prices up.
“Governments with land use authority often point to having a certain “number of years” of supply for housing, failing to recognize that this very limitation tells owners whose land can be developed and whose cannot. The result is to increase the price of land and housing. It is inappropriate to use “years of supply” indicators to evaluate housing markets. Price is the only valid indicator and it should be contrasted with incomes, something that the Median Multiple accomplishes.”
Source: pages 2-3 Demographia International Housing Affordability Survey: 2009
Some Australian councils require builders and developers to cover or at least contribute to the cost of infrastructure, which according to the report also increases the cost of housing.
Given that Australian property is still incredibly unaffordable, is the bubble about to burst, sending property prices crashing to the ground? The editors at Aussie newspapers think so, with headlines like “Australian housing bubble ‘yet to burst’“. All of that could be pumped up media sensationalism … except that the people from Demographia tend to agree:
“It seems likely that, sooner or later, the inherent instability and unsustainability that characterizes bubbles will lead to house price declines in Australia. However, were it possible for Australia to retain its highly over-valued house prices, there would still be a significant cost. Future generations would pay far more for housing than in the past, and Australia’s relative standard of living would decline.”
If Australian prices don’t fall by, say, a further 20 per cent, then we might feel like we are better off now, but we may be paying for it later. One way or another it’s going to bite.
I’m interested to know what you think, so feel free to leave a comment below.