The Race
From 1997 to 2018, there has been a continuous increase in both income and housing costs. The question is, who is winning?
According to the Australia Bureau of Statistics (ABS), there are four main housing tenure situations in Australia: owners with a mortgage, owners without a mortgage, renters with private landlords, and renters with state or territory housing authority. Similarly, in terms of income, there lies three ranges: lowest income, middle income, and high income. In all of these situations, the rates have increased, although it is significant to determine what has increased at a faster rate.
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In 1997-98, owners with a mortgage had average weekly housing costs of $345. In 2017-18, this figure increased by 40 per cent, reaching over $400. Owners without a mortgage experienced a higher increase of 51 per cent. These figures were experienced by the majority of Australians, with 66 per cent of Australian households having ‘owned’ their home with or without a mortgage. The other 32 per cent of Australian households rented.
Those who rented with state or territory housing authority experienced a jump in housing costs of $104 to $158 from 1997-98 to 2017-18; a 52 per cent increase. People who rented their home through private landlords also experienced a jump in housing costs from $264 in 1997-98 to $399 in 2017-18; a slightly lower increase of 51 per cent. These rates are expected to continue to increase with ANZ Bank predicting a 17 per cent increase in 2021, followed by another 6 per cent increase in 2022.
In terms of income, between 1997-98 to 2017-18 low-income earners received an average weekly income of $293 which increased by 48 per cent to $433. Middle income earners experienced an increase from $591 to over $900; a 52 per cent increase. High income earners experienced a significant increase of 69 per cent from $1,200 to $2,100.
So, who is winning the race?
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Data from ABS, Housing Occupancy and Costs and Household Income and Wealth Australia
A high weekly income increases at a faster rate than the housing costs of all housing tenure situations. Middle to low weekly incomes, however, vary in terms of housing costs. The rate of 52 per cent for middle income earners increases faster than the housing costs of owners with and without a mortgage, and renters through private landlords. The rate of renters with state and territory housing authority increases at the same rate as middle income earners. This changes for individuals who earn a low income, as the increasing rate for housing costs in all housing tenures, except owners with a mortgage, increases at a faster rate.
This is where the problem with the Australian housing market begins. The housing costs for owners without a mortgage, renters with a private landlord and renters with state and territory housing authority has increased up to 4 per cent more between 1997 to 2018 than the weekly average income for low-income earners. According to .id over 37 per cent of Australians earned a low income in 2016.
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Supply vs. Demand
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We have established that - in some areas - housing prices have steadily increased at a faster rate than the average weekly income. This means for some people, they cannot afford to buy or rent a house. But this isn’t the only problem that exists within the housing market. For people in the medium to high income bracket who may be able to afford housing, the supply and demand issue comes to light. Although this may sound simple, it is more complex.
In a report by the National Housing Finance and Investment Corporation (NHFIC), between 2017 and 2019, supply surpassed demand by over four thousand dwellings. Predictions for 2021 and 2022, see Sydney’s supply of housing exceeding demand by almost 60,000 dwellings. This flips from 2023, with NHFIC predicting demand will exceed supply, with Sydney reaching an expected undersupply of almost 14,000 dwellings in 2024. But this isn’t the situation for all of Australia. The Australian Housing and Urban Research Institute (AHURI) said “much of the growth in Australia’s housing stock has not been in areas where it is most needed.”
Real estate agent, Alex Crockcoft, from Ray White Shellharbour, said there is not a great deal of stock in the Shellharbour area.
“There are people fighting for it, so we might have 3, 4, 5 bidders on one property,” Alex said.
Alex said reasons for this is due to the COVID-19 scenario and interest rates.
“A lot of people not being able to travel is a main factor. Lockdown, restrictions, there is a lot more people being at home and spending a lot more time in their home realising they can work from home but may need a bigger house or want a better area. People are spending more time in their home so they are investing their money that they would have spent going overseas, and they are putting it in real estate.
Plus, one of the major things is obviously interest rates at the moment are at an all-time low so that is encouraging people to buy. To be able to borrow money now is quite easy,” Alex said.
Right now, despite what national statistics are predicting, the Shellharbour area is facing huge supply shortages with significant demand.
Real estate agent, Alex, said some buyers are certainly missing out.
“I have come across multiple families that have told me they have missed out for 12 months, time after time they’ve gone and missed out on twenty properties,” Alex said.
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So, what's the problem?
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Supply and demand of the housing market directly impacts housing costs. When there is more demand than supply, housing prices will rise, but people’s average incomes are not affected and will remain similar. Even with the supply and demand of the housing market not impacting housing prices, these prices still increase at a faster rate for low-income earners.
Due to huge demand with little supply, housing values are over 10 per cent higher than a year ago, according to CoreLogic’s monthly housing update for September 2021.
According to CoreLogic, home values rose 1.5 per cent just last month. CoreLogic said the “annual increase in national dwelling values equates to $103,400 or $1,990 per week.”
With Australian wages rising at an average annual rate of 1.7 per cent, housing costs rose 11 times faster.
With more demand than supply, people may not be able to find a house, but even if they can, they might not even be able to afford it with housing prices overtaking income.
This is the problem with the housing market.
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In the next three chapters you will see the success and flop stories of the housing market for millennials, but it is important to note that in extreme cases, homelessness can be caused by limited housing or rental stress. In the latest ABS Estimating Homelessness release, over 49,000 people slept rough in 2016. One in 201 Australians are homeless where 60 per cent of homeless people are under 35-years-old. When becoming homeless can be as simple as not being able to afford housing, especially when looking at the housing market currently, the statistics on homelessness in Australia may not surprise you as much.
