I discuss the latest New Zealand property data with Joe Wilkes, our New Zealand Property insider.
The numbers do not add up!
Category: Home Prices
The Latest On May 2019 Home Prices
We discuss the latest results across the country, based on the CoreLogic indices.
Winter Is Coming – The Property Imperative Weekly To 01 June 2019
The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.
Housing affordability has improved slightly, but…
The re-election of the Morrison government has delivered an Australian housing policy platform based on home ownership. The recently announced First Home Loan Deposit Scheme and the existing First Home Super Saver Scheme complement first home buyer grants and stamp duty concessions from state and territory governments. What we aren’t going to see is a major increase in the supply of affordable housing through a dedicated subsidised affordable rental program or negative gearing and capital gains tax reform.
Is a policy based on home ownership going to fix the problems of housing affordability in this country? The BCEC Housing Affordability Report published today by the Bankwest Curtin Economics Centre suggests not.
The report is based on a survey that collected responses from just over 3,600 Australians across three states – New South Wales, Queensland and Western Australia – with 75% of responses from metropolitan locations and 25% from regional areas.
Similar surveys were conducted in 2015 and 2017. This allows for comparisons across the three periods.
Housing costs
The survey asked respondents to estimate the proportion of their gross income spent on housing costs. Around 40% of all households reported living rent/mortgage-free (outright owners, young adults living with parents etc). The chart below shows the distribution across six bands for the remaining households.
Just under half reported paying over 30% of their income on rent or mortgage costs. We see little change over the three surveys, although slightly fewer households are now paying more than 50%.
For 2019, slightly more private renters pay over 30% compared to owners with a mortgage, but renters are more likely to be in the highest burden groups. The main difference is 60% of renters are forced to take on these high housing costs while 72% of owners take them on by choice.
Households are very sensitive to changes in housing costs: 40% of those surveyed said a 10% increase in costs would have a major impact on their financial position. The expected impact was greater for renters than owners with a mortgage (44% compared to 38%). A 3% increase in the mortgage interest rate would have a major impact on the financial position of 63% of owners.
The impact of sustaining such costs can be severe: 46% said high housing costs affected their mental health and 30% their physical health.
The chart below shows the proportions of households struggling to meet their housing costs. Again, we see only slight improvement across the three surveys.
Among all households, 37% reported difficulty regularly meeting housing costs (at least a few months a year). This rose to around half of all renters and low-income households and to 56% of one-parent families.
Perceptions of affordability
Housing affordability is not just about paying the rent or mortgage. It also includes running costs such as utility bills and maintenance. The survey asked respondents to rate the affordability of their housing on a ten-point scale and the results were collated into three ranks.
The chart below shows some improvement across surveys in the proportions of households rating their housing as affordable. These households are largely outside the lower-income groups.
Policy settings
The deposit gap is the biggest barrier for potential home buyers, almost double the importance of the next barrier – a lack of stable employment. Other barriers largely revolve around a lack of suitable stock.
Help for first home buyers is now embedded. Around three-quarters of potential purchasers regard government help through the various mechanisms shown in the chart below as quite or very important while two-thirds would like access to their superannuation to fund a deposit.
For those without help from the “bank of mum and dad” these policies can mean the difference between home ownership and many more years living with parents or renting. It is difficult to see how such help can be equitably removed from the housing system.
The survey included a number of questions for respondents owning an investment property and for those thinking about buying one. The capital gains tax (CGT) discount was more important to investors that negative gearing. However, only 15% regarded the latter as unimportant.
Around a quarter of investors said they wouldn’t have bought their property if negative gearing were not available and CGT was half its current rate. And 28% said they would not buy an investment property in the absence of negative gearing.
Such results suggest a modest impact on investment demand which could impact on local housing markets, depending upon the balance between investors and owner-occupiers in those markets.
Policy development
Between the 2017 and 2019 surveys, house prices and rents fell in large areas of the three states. Yet our analysis shows little impact on affordability for low-income households. Intervention is required to deliver housing affordable to such households.
Investment in the National Housing Financial Investment Corporation (NHFIC) and the National Housing and Homelessness Agreement (NHHA) provides some hope outside home ownership policies. The NHFIC has a major role to play in securing funding for the community housing sector. Let’s hope it does not get sidetracked in its new role delivering the first home buyers deposit guarantee scheme.
Large numbers of households are struggling with their housing costs, and not meeting these costs can result in homelessness. This points to the need for more investment in public and community housing.
Ultimately, there is a mismatch between incomes and house prices. Major housing system reform is necessary to redress the balance.
In the meantime, a large and sustained supply of subsidised rental housing and a secure private rental sector that offers a real alternative to ownership are essential components of any future Australian housing system.
Authors: Steven Rowley, Director, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University; Alan Duncan, Director, Bankwest Curtin Economics Centre, and Bankwest Research Chair in Economic Policy, Curtin University; Amity James, Senior Lecturer, School of Economics, Finance and Property, Curtin University
US Home Price Gains Continue To Weaken
S&P Dow Jones Indices released the latest results for the S&P CoreLogic Case-Shiller Indices, the leading measure of U.S. home prices. Data released for March 2019 shows that the rate of home price increases across the U.S. has continued to slow.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.7% annual gain in March, down from 3.9% in the previous month. The 10-City Composite annual increase came in at 2.3%, down from 2.5% in the previous month. The 20-City Composite posted a 2.7% year-over-year gain, down from 3.0% in the previous month.
Las Vegas, Phoenix and Tampa reported the highest year-over-year gains among the 20 cities. In March, Las Vegas led the way with an 8.2% year-over-year price increase, followed by Phoenix with a 6.1% increase, and Tampa with a 5.3% increase. Four of the 20 cities reported greater price increases in the year ending March 2019 versus the year ending February 2019.
“Home price gains continue to slow,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.
“The patterns seen in the last year or more continue: year-over-year price gains in most cities are consistently shrinking. Double-digit annual gains have vanished. The largest annual gain was 8.2% in Las Vegas; one year ago, Seattle had a 13% gain. In this report, Seattle prices are up only 1.6%. The 20-City Composite dropped from 6.7% to 2.7% annual gains over the last year as well. The shift to smaller price increases is broad-based and not limited to one or two cities where large price increases collapsed. Other housing statistics tell a similar story. Existing single family home sales are flat. Since 2017, peak sales were in February 2018 at 5.1 million at annual rates; the weakest were 4.36 million in January 2019. The range was 650,000.
“Given the broader economic picture, housing should be doing better. Mortgage rates are at 4% for a 30-year fixed rate loan, unemployment is close to a 50-year low, low inflation and moderate increases in real incomes would be expected to support a strong housing market. Measures of household debt service do not reveal any problems and consumer sentiment surveys are upbeat. The difficulty facing housing may be too-high price increases. At the currently lower pace of home price increases, prices are rising almost twice as fast as inflation: in the last 12 months, the S&P Corelogic Case-Shiller National Index is up 3.7%, double the 1.9% inflation rate. Measured in real, inflation-adjusted terms, home prices today are rising at a 1.8% annual rate. This compares to a 1.2% real annual price increases in housing since 1975.”
One other point to note, after the 2007 financial crisis, home prices continued to fall for a further three years. A salutatory warning to those in Australia who think prices are about to rebound! In fact it took more than a decade for prices to return to their 2007 levels.
Housing market unlikely to rebound soon
Despite the recent surge of optimism regarding the property market, one financial analyst feels that the relief is misplaced, via Australian Broker.
“There are some people now claiming that property prices have hit bottom and it’s all up and away from here. But then, there are others who rightly focus on the burden of debt, which is very big and means there will be some limitation to how far property prices can reverse,” explained Martin North, principal of Digital Finance Analytics.
“There is significantly more interest in property now than there was a few weeks ago, yes. But the jury is still out on whether that will translate to sustainable reductions in the fall of home prices, and rises ahead. The probability of coming into a property boom anytime soon is very limited.”
According to North, a large part of the issue lies in a crucial and crippling disparity in supply and demand.
ABS data reports there are more than one million vacant properties in Australia currently, yet 200,000 new dwellings are scheduled to be built in the next two years.
Aspiring housing market entrants are being barred by tightened lending, immigration has stagnated and investors are not only disinterested in returning to the market, but many are actively trying to sell the properties they do have.
“That’s why I’m still thinking that there’s plenty of room on the downside for property values to continue to fall,” explained North.
Even the initiatives recently proposed, such as APRA changing the servicing rate floor or the promised first home buyer scheme, are likely to have only a “small and positive effect, not a dramatically large one.”
“We’ve still got the very high level of household debt, we’ve still got very high levels of mortgage stress, we’ve still got the banks tight on their lending standards,” the anaylst reminded.
While North feels confident that the last 18 months of property values sliding is outside the natural ebb and flow of the housing market and indicates the presence of a deeper issue, he doubts the validity of using home prices as the key indicator of the state of the economy.
He explained that there are too many factors that play into the property market for it to be an accurate litmus test, calling it “a follow up, rather than a lead indicator.”
Instead, he suggested attention should be given to monitoring any significant rises in unemployment, mortgage defaults, or the consumer price index.
Wanted First Time Buyers – Your Country Needs You!
Property expect Joe Wilkes and I discuss the latest New Zealand data, and consider the drive to attract first time buyers in both NZ and Australia. What does the data say?
Is this a housing system that cares?
Growing numbers of Australians are locked out of home ownership or struggling in insecure and unaffordable private rental markets. There are concerns about home owners drowning in debt. And for lower-income earners, high housing costs mean that paying for food, energy bills and health costs is an ongoing challenge.
It is time for a new way of talking about housing in Australia. The housing crisis is quickly turning into a crisis of care.
We call on the newly re-elected Morrison government and new Housing Minister Michael Sukkar to recognise that the value of housing is not just economic. Housing is an infrastructure of care. Australian governments need to ask: is this a housing system that cares?
A location for essential care
Houses are hubs of care practices and relations. They are places of everyday care, of cooking, cleaning and washing, of care between household and family members. Houses are where we care for children, elders, partners and ourselves.
Houses are also anchors for community and neighbourhood-based care. We keep an eye on neighbours’ homes, support older neighbours to age in place, and care for pets.
This care work is what keeps us alive.
Even though care is not always done well, it is an essential practice that is connected in fundamental ways with housing. Without housing it can be very difficult to meet basic needs.
The care work of housing
But housing is more than just a place where care takes place. Housing systems – through housing policy, markets and design – organise the distribution of care and the ability of people to give and receive care.
In our research this drives us to ask: how does the housing system support or limit the capacity of households to care?
We argue that housing is a care infrastructure and call for this understanding of housing to be at the centre of housing reform.
Home owners benefit
In Australia we value housing as an individual investment and asset. The economic values of housing (how much we can buy, sell or otherwise leverage housing for) are at the heart of how housing is usually discussed.
For affluent households housing markets can work very well as a care infrastructure. This is because these households can more readily afford housing that meets household care needs. They are also more able to invest in housing to cover the costs of care in later life and to support the needs and ambitions of children. For home owners housing is a private welfare net for funding care needs.
Australian housing and related policies create and reinforce the value of home ownership. Subsidies for first home owners, the proposed First Home Loan Deposit Scheme (which will be a focus of efforts by the new housing minister), preferential treatment for owner occupation in pension tests and tax breaks for investor landlords underpin the value of home ownership as an infrastructure of care.
However, for the growing numbers of households not in a position to own a home the picture is less rosy. In many cases housing becomes an infrastructure that inhibits access to necessary care. As increasing numbers of households rent for longer periods, we risk a housing system that only cares for some.
Housing affordability
Housing affordability is a central concern. Lower income earners have less ability to choose to live in places that are well serviced or where family-based care networks are located. Less affluent areas often have less access to public and private care services like doctors and other specialists.
Housing affordability also shapes the ability to afford other care resources like quality food and electricity. Households that face high housing costs are often forced to compromise in these areas.
In Emma’s and other related research older retirees in the private rental market depended on local food charities for nutritious food. And in winter they restricted their use of heating to avoid bill blow-outs.
There are also connections between paid work, caring capacity and housing affordability. High-cost housing markets can drive people to work longer hours and multiple jobs, or require multiple income earners within a household. This can reduce the ability of individuals and households to meet domestic care responsibilities.
Tenure and care
Non-home owners also face restrictions around their use of private rental properties. For a start, rental housing is notoriously insecure. There are also restrictions on the ability of renters to make a house into a home.
Private rental legislation typically does not require landlords to agree to property modifications to meet the needs of a person with disability or ageing body, even when tenant-funded.
Women in Emma’s research reported losing bonds to cover costs associated with removing modifications that had been agreed to during a tenancy. In Kathy’s research, the fear of eviction meant private renters found it difficult to ask for and be granted repairs that would make their homes habitable. They endured leaking roofs and mouldy walls that made housing unsuitable for meeting basic care needs.
Such policies reinforce the value of owned homes as powerful care infrastructures for home owners, while undermining the caring capacity of households that don’t own their homes. While social housing enhances the caring capacity of many households, social housing is chronically underfunded and undersupplied.
Diversity helps meet different needs
As growing numbers of households find themselves locked out of home ownership and face difficulties securing affordable housing in our expensive private rental markets, Australia badly needs housing reform.
The care work of housing must be at the centre of housing policy. The new government and minister for housing must ask: first, is this a housing system that cares? And, second, who does this housing system care for?
Historically, this question has been answered with calls to increase home ownership. But there is value in a diverse housing system because different households have different needs.
Further, those who invest in housing are dependent on the people who will rent that housing. These people in turn have the right – and need – for housing that supports their care needs. Affordable housing is only the starting point.
Authors: Emma Power, Senior Research Fellow, Geography and Urban Studies, Western Sydney University; Kathleen Mee, Associate Professor of Geography, University of Newcastle
The Inter-generational Game of Thrones: The Property Imperative Weekly 25 May 2019
The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.
How millennials are affecting the price of your home
It used to be that everyone wanted to buy a home, seeking pleasure and security, as well as the potential for future wealth.
But younger Americans are buying homes far less often than their elders’ generations did, and that puts a large sector of the U.S. economy at risk.
Millennial home ownership levels are dramatically lower than the those of previous generations at a similar age. In 1985, 45.5% of 25- to 34-year-olds owned homes in the U.S. By 2015, this had fallen about 25%.
Since the housing industry currently accounts for 15% to 18% of the nation’s gross domestic product, any change in established behavior could have substantial consequences on the larger economy.
Researchers like me who are interested in the future of the U.S. economy are faced with some difficult questions about how millennials’ behavior is changing the housing market.
My recent research suggests that both increases and decreases in home prices can be directly tied to where millennials choose to live. If a long-term behavioral change is afoot, and this generation continues not to buy homes, it will very directly impact GDP.
Homeownership
Research has shown that younger generations lag behind previous generations in terms of milestones like homeownership and marriage.
One of the assets that set previous generations apart is home equity. In 2001, Gen-Xers held an average of US$130,000 in assets, compared to millennials in 2016 that held almost 31% less.
However, assets attributed to home equity are subject to the whims of the housing market. Just ask anyone still underwater on a home purchased before the financial crisis.
And home equity isn’t just vulnerable to large-scale economic upheavals. In fact, it’s constantly fluctuating.
Age and cost
I analyzed data from the U.S. Census Bureau and American Community Survey from about 800 of the most populous counties in the U.S., or about 85% of the population, in a study that has not yet been published. The data show a rather disconcerting trend.
If no one ever moved from one county to another, almost all counties would gradually grow older in terms of average age.
However, the migration of primarily younger individuals has caused an escalation in this aging shift. Some areas are aging much more quickly than expected. In those areas, home prices have been vulnerable to long-term declines.
In other words, the trend of rising or falling home values follows patterns of migration in the U.S.
From 2010 to 2016, counties with aging populations were about 50% more likely to have experienced a decline in home values than those counties that were becoming “younger.” Not surprisingly, counties that were becoming younger were often experiencing increases in both populations and in the prices of homes.
Two areas that provide an illustration of this are key to the oil and gas industry: the Midland-Odessa area of Texas and Ward County, North Dakota. Both areas have experienced not only a net decrease in the age of residents, but also a net increase in population.
This is far from a rural phenomenon. In Allegheny County, the Pennsylvania county that’s home to Pittsburgh, a similar increase in population has also decreased the average age of its residents.
The cost of a home
Millennials’ migration to particular counties has fueled speculative real estate transactions.
In 2018, such transactions are reaching levels just below the pre-crisis highs, accounting for almost 11% of all homes sold last year. The prices are inflated by buyers looking to “flip” houses. This forces younger buyers to compete with the professionals, pushing them out of the markets they are migrating to.
Younger buyers are further frustrated by the cost of what economists refer to as frictions. Frictions include commissions that average 5% to 6% of the purchase price, myriad inspection and appraisal fees, as well as mortgage and title insurance. All of this runs counter to the transparency and ease of access many millennials have become used to in the modern world.
Since the younger generation is better educated, one might expect significant wage increases to counter some of these frictions. But recent graduates between the ages of 22 and 27 earn about 2% less than their predecessors did in 1990.
If home prices had also stayed relatively flat, this likely wouldn’t be an issue. However, from 2000 to the present, average home prices have increased by about 3.8% annually, though this varies dramatically from county to county.
As urban areas continue to attract more new residents, many young people may need to reassess the true value that home ownership offers. Meanwhile, older generations are likely just becoming aware of the impact of millennial migration on the American dream. If you live in an area that is aging faster than the natural rate, the probability of your home value decreasing is very real.