A report released today has refuted commonly reported perceptions of the Australian housing market, saying homes in the country are not overly expensive with the median price at $371,000.
A report released today has refuted commonly reported perceptions of the Australian housing market, saying homes in the country are not overly expensive with the median price at $371,000.
The report, co-authored by RP Data and Rismark International contends that thorough analysis of the unique characteristics of the market shows that Australia's dwelling-price-to-income ratio, a standard measure used to compare the cost of housing, is currently 4.1, a significantly smaller figure than ratios of 7-8 which is commonly reported.
It also argues that the imminent review of the tax system by Treasury boss Ken Henry should address state-based supply side taxes as a means to reducing rigidity in the market, rather than the oft-advocated revisions to capital gains tax.
The report's authors account for features of the Australian housing market which are not typically considered by other commentators; that one in four homes are not free standing houses but generally cheaper apartments and terraces, and that 40 per cent of Australia's total housing stock is not located in more expensive regions of capital cities, but in outer-metro and regional areas.
The inclusion of these characteristics leads RP Data-Rismark to conclude that a suitable median figure for Australian house prices is $371,000, far less than the half-a-million type figures commonly reported.
The authors also contend that the increases in the debt levels and price-to-income levels of Australian households throughout the 1990s were not the result of spiralling house prices, but instead due to what it calls 'level-effects associated with the secular reduction in inflation.'
To put it simply, these are the lower perceived risks of interest rate fluctuations brought about by the success of the newly-independent RBA's policy of inflation targeting. By managing to keep CPI inflation largely within its stated 2-3 per cent band, the RBA gradually re-instilled the household confidence that was lost during the torrid 70s and 80s, resulting in the dwelling-price-to-income ratio rising gradually from 2 in 1983 to current levels of around 4 to 4.5 since 2000.
The report also maintains that implicit in Australia's internationally high rates of home ownership, its low mortgage default rates and the fact that house prices are continuing to rise, is that housing affordability can not be as bad as is commonly reported.
In fact based on the RBA's preferred measure, affordability is no worse than it has been over the last 28 years, and that even at the peak of prices in the early-mid 2000s, affordability was better than it was in the bear years of the late 80s and early 90s.
Finally, the report's authors show that state zoning restrictions and local, state and commonwealth taxes and charges on producing and selling homes can add as much as $160,000 to the cost of a new dwelling. They say these charges should be addressed in the Henry Review and not the CGT exempt status of primary dwellings, which was found to be in line with international standards.
