Property Market – Page 163 – Digital Finance Analytics (DFA) Blog

Property Investors Lose Tax Breaks

The Treasury has released its exposure draft for consultation on the plans announced in the budget to disallow travel expense deductions and limit depreciation for plant and equipment used in relation to residential investment property.

Closing date for submissions: Thursday, 10 August 201.

As part of the 2017-18 Budget, the Government announced it would disallow travel expense deductions relating to residential investment properties and limit depreciation deductions for plant and equipment used in relation to residential investment properties.

Travel deductions

From 1 July 2017, all travel expenditure relating to residential investment properties, including inspecting and maintaining residential investment properties will no longer be deductible.

This change will not prevent investors from engaging third parties such as real estate agents to provide property management services for investment properties. These expenses will remain deductible.

Plant and equipment depreciation deductions

From 1 July 2017, the Government will limit plant and equipment depreciation deductions for investors in residential investment properties to assets not previously used. Plant and equipment items are usually mechanical fixtures or those which can be ‘easily’ removed from a property such as dishwashers and ceiling fans.

Plant and equipment used or installed in residential investment properties as of 9 May 2017 (or acquired under contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

The Government has released exposure draft legislation and explanatory material for amendments to give effect to the Budget announcements outlined above.

Public consultation on the exposure draft legislation and explanatory material will run for four weeks, closing on Thursday, 10 August 2017. The purpose of public consultation is to seek stakeholder views on the exposure draft legislation and explanatory material.

Owner-occupiers are propping up the market

From The New Daily.

Australian regulators are trying valiantly to cool the property market by curbing investor lending, but demand appears stubbornly strong.

The latest housing finance data for May, published by the Australian Bureau of Statistics on Tuesday, showed a surge in owner-occupier lending is compensating for a drop in investor loans.

For the fourth month in a row, the total amount of money lent for mortgages across Australia declined slightly, from $33.3 billion in January to $32.8 billion in May.

Over the month, housing finance fell -0.3 per cent in value, on the trend measure, driven by a -1.5 per cent shrinkage in loans to investors.

However, owner-occupier loans rose +0.4 per cent in value over the month.

Owner-occupiers are surging back into the market, lured by the juicy rates on offer by the banks. The share of new loans going to investors has been gradually declining, from 40.3 per cent in January to 37.3 per cent in May.

The modest dent in mortgage lending may disappoint the Australian Prudential Regulation Authority, if indeed it is trying to cool the market overall. Or it might simply be satisfied that more owner-occupiers are getting in.

A comparison of mortgage lending in May each year shows that cheaper loans to owner-occupiers are blunting the impact of the investor rate hikes by the banks.

The big drops in 2015 were the last time APRA attempted to cool the market. As the chart above shows, the effect was temporary.

So the regulator had another go. In March this year, the regulator announced that banks would have to limit “higher-risk” interest-only loans to 30 per cent of new residential mortgages, down from 40 per cent.

The banks were also instructed to keep investor lending “comfortably below” the 10 per cent annual growth rate APRA imposed in December 2014 – which was interpreted as an even lower benchmark.

Banks have responded by hiking rates for investor and interest-only mortgages, gradually widening the gap relative to the Reserve Bank’s cash rate, in order to comply with the tighter rules.

The RBA estimated that, as of June, the standard variable rate for investors was an average of 5.8 per cent, up 30 basis points since November 2016.

And yet, price growth is stubborn.

The latest CoreLogic numbers had dwelling prices increasing by a huge 1.8 per cent in June, the strongest month-on-month increase in two years, despite small (possibly seasonal) dips in April and May.

Treasurer Scott Morrison has already claimed victory. He said earlier this month the Coalition government had achieved a “safe landing” for house prices by relying on APRA, as opposed to Labor’s “hard landing” of cutting tax breaks for investors.

First home buyers will be hoping he was right, as the supposed cooling has so far not translated to greater affordability.

It did take a few months for APRA’s 2015 crackdown to be fully felt. Many experts are predicting the market will cool further this year.

CoreLogic reported this week that the national price-to-income ratio – a popular measure of affordability – reached 7.3 per cent in the March quarter of 2017, up from 7.2 in 2016 and 6.1 in 2007.

The data firm also calculated that it would have taken 1.5 years of gross annual household income to save a mortgage deposit in the March quarter of 2017, compared to 1.4 years in 2016 and 1.2 years in 2007.

A recent Essential Media poll of 1025 people, conducted in June and July, found that 66 per cent believed housing to be unaffordable in their area for someone on an average income – and 73 per cent considered housing to have become less affordable in their area over the past five years.

Can Australia get any worse for foreign buyers?

From Mortgage Professional Australia.

New financial year brings additional charges and regulations as Treasury predicts number to more than halve.

Capital controls, bank lending standards and foreign buyer taxes could “wind back the clock to 2015”, international real estate portal Juwai.com has warned.

The new financial year has hit foreign buyers with increased stamp duty – 8% in NSW and 7% in Victoria – as well as a new vacancy tax and 50% cap on off-the-plan properties sold to non-residents.

Lending to foreign buyers remains extremely tight, brokerage Alliance Mortgage Solutions told MPA with just a handful of non-banks continuing to lend to borrowers at relatively high rates. Additionally, the fall in the Chinese renminbi has made Australian property relatively more expensive.

Speaking in May, Australian Treasury Secretary John Fraser noted that “the number of all foreign investment applications for residential housing has fallen from 40,000 in 2015 16 to an expected 15,000 in 2016 17.”

Australia is falling behind globally

The warning by Juwai.com chief of operations Sue Jong was part of an otherwise optimistic report on Chinese investment in real estate abroad, which hit $133.7bn in 2016

Australia remains the second most popular destination for real estate, after the USA, but Jong observed that “investment flows have decreased markedly from their peak, while remaining strong by historic standards.”

Globally, Juwai.com expects 2017 to be one of the top three years on record for Chinese investment, arguing that there is still plenty of pent-up demand to invest in China. Relative to population size, Chinese investors own less real estate than Slovenians.

It’s far from guaranteed that the Australian Government’s measures will reduce foreign buyer demand. Writing in MPA, Juwai.com’s Australian head Jane Lu suggested fewer than 5% of their clients would be hit by the tax, many of which were wealthy enough not to care.

Brokers diversifying away from the sector

A further fall in foreign buyer numbers would be a further nail in the coffin for brokers working with this group.

Back in 2014, industry rankings such as MPA’s Top 100 Brokers report were dominated by brokers working with foreign buyers.

Whilst many of these brokers remain in the industry, they have had to make major changes; Alliance Mortgage Solutions, one of this year’s MPA’s Top 10 Independent Brokerages, saw 35% of their business affected and have introduced client fees in response.

Other Top 10 brokerage N1 Loans, part of ASX-listed N1 Holdings, has diversified into real estate, using real estate agents to drive customers to their brokers. “We’ve had this plan for 18 months to diversify, CEO Ren Wong told MPA “our aim is to have mortgage broking revenue less than 50% of the overall revenue competition.”

Auction Volumes Wane Again

From CoreLogic.

The combined capital city preliminary clearance rate increased to 70.7 per cent this week, up from 67.3 per cent last week, while auction volumes fell week-on-week. There were 1,751 properties taken to auction this week, down from 2,001 last week, although higher than this time last year, when 1,399 auctions were held and a clearance rate of 70.6 per cent was recorded.

Over the past 5 weeks, the final clearance rate across the combined capital cities has been sitting in the mid-high 60 per cent range and it is likely that this will be the case again on Thursday when our final results are published.

All but two of the capital cities saw the clearance rate increase week-on-week while Melbourne recorded the highest preliminary clearance rate at 73.9 per cent.

Three reasons the government promotes home ownership for older Australians

From The Conversation.

Government strategies to manage population ageing largely assume that older Australians are home owners. There is often an implied association between home ownership and ageing well: that is, older Australians who own homes are seen as having made the right choices and as being less of a budget burden.

The problem with this approach is that not everyone is or can be a home owner. A great many households are, for many reasons, locked out of home ownership.

My analysis of 20 years of federal government ageing strategies and age-focused analyses of the housing system shows that Australian governments of all persuasions have shared three common beliefs about the economic value of home ownership in later life. They have promoted home ownership as:

somewhere to live;

an asset to rent or sell; and

a way to access and spend equity.

Somewhere to live

Australian governments have valued and promoted home ownership because it provides somewhere to live in later life, with no regular ongoing costs such as rent.

As a 2015 Productivity Commission report argued:

Because the majority of older Australian households own their homes outright, their housing costs are typically very low, yet they enjoy the benefits from continuing to live in their homes. […] This source of value (relative to overall household expenditure) becomes markedly more important with increasing age.

Owning a home is seen as largely cost-neutral, though the costs of maintaining housing are recognised in some documents. In contrast, the privately rented home is discussed as an ongoing financial burden.

Home ownership is seen to provide economic security by freeing up income, so that people have greater disposable income for discretionary lifestyle spending in later life.

In other words, owning a home enables home owners to be consumers. While this can be seen as ensuring quality of life in older age, it also connects strongly with a broader government goal of growth in consumer spending.

An asset to rent or sell

Governments have also valued home ownership as an asset that people can rent out or sell so they can pay for costs associated with moving to “age-appropriate” housing. This includes paying bonds for retirement villages or nursing homes.

It has been suggested that older home owners are better equipped than, say, renters with the financial resources to make “appropriate” choices for housing and care in later life.

For example, they might be able to afford to buy housing within an “active lifestyle community”. And any leftover funds can fund higher levels of consumption in retirement.

So, home ownership has been understood as an individualised way of managing the risks of ageing.

People who own higher-value housing are better off in this scenario, as they will reap greater profits if they sell their home, or secure a higher income if they rent it out.

However, these benefits can be difficult to access. This is due to the very high costs of housing in some cities, and the risks associated with some retirement housing.

Accessing (and spending) housing equity

The third way governments have seen value in home ownership is through new financial products that enable home owners to access – and spend – home equity.

Emphasis is usually placed on the capacity to make a proportion of the home “liquid” while retaining overall ownership and the ongoing right to live in the house. For governments, this has two benefits:

It enables older people to pay for more of the costs of older age, including for aged care. This is a way of shifting these costs away from the government in situations where people are seen as having the capacity to co-contribute.

It enables home owners “to pay for additional services over and above the approved care”, according to the Productivity Commission. This supports government goals for economic growth by expanding the aged care market.

Funds released in this way enable lifestyle “choice” and better care in older age.

Home owners are winners

These three benefits suggest a system in which home owners are equipped with greater spending power – and hence choice – in older age. They are likely to have access to higher levels of care, and to be more able to make choices that enable them to age “well”.

Quite curiously, in some documents baby boomers are distinguished as desiring higher-quality services in later life. The capacity to access and spend home equity is seen as enabling this possibility.

The promotion of home ownership as a way of funding care in later life is part of a broader policy trend toward making people personally responsible for the opportunities they have in life. While this may make intuitive sense, it is unjust because it ignores factors that shape income and investment opportunities, including home ownership, over the life course.

Data from the 2016 Census show that households living on the median single-person income could not afford the median rent in Australia, and that home ownership is increasingly out of reach.

Single older women are among the fastest-growing group of homeless people in Australia. And, for non-home owners, poverty in later life is on the rise.

Australia needs ageing strategies that do more than assume everyone is a home owner – or that home ownership is a simple choice.

Author: Emma Power, Senior Research Fellow, Geography and Urban Studies, Western Sydney University

Inequality Rules – The Property Imperative Weekly 8th July 2017

The Reserve Bank held the cash rate, more banks hiked mortgage interest rates, household debt rose again and our latest research showed that more than 800,000 households across Australia are experiencing mortgage stress. Welcome to the latest edition of the Property Imperative Weekly.

HSBC said the housing bubble fears were overblown. At a national level, a key reason for rising housing prices has been housing under-supply, Chief Economist Paul Bloxham wrote in a research note on Thursday and suggested that a significant fall in Australian housing prices, as occurred in the U.S. and Spain during the global financial crisis, is unlikely.

But data from CoreLogic showed whilst home prices rose in the last quarter, whilst auction volumes fell, and housing affordability deteriorated. The national price to income ratio was recorded at 7.3 compared to 7.2 a year earlier, and 6.1 a decade ago. It would have taken 1.5 years of gross annual household income for a deposit nationally at the end of the March compared to 1.4 years a year earlier and 1.2 years a decade ago. The discounted variable mortgage rate for owner occupiers was 4.55% and an average mortgage required 38.9% of a household’s income.

New data from the RBA showed that the household debt to income rose to a high of 190.4. Households are more in debt than they have ever been, and the main question has to be, can it all be repaid down the track, before mortgage interest rates rise so high that more get into difficulty.

Our June mortgage stress results showed that across the nation, more than 810,000 households are estimated to be now in mortgage stress up from 794,000 last month, with 29,000 of these in severe stress. This equates to 25.4% of households, up from 24.8% last month. We also estimate that nearly 55,000 households risk default in the next 12 months. The main drivers are rising mortgage rates and living costs whilst real incomes continue to fall and underemployment is on the rise. This is a deadly combination and is touching households across the country, not just in the mortgage belts.

We analyse household cash flow based on real incomes, outgoings and mortgage repayments. Households are “stressed” when income does not cover ongoing costs, rather than identifying a set proportion of income, (such as 30%) going on the mortgage. Stressed households are less likely to spend at the shops, which acts as a drag anchor on future growth. The number of households impacted are economically significant, especially as household debt continues to climb to new record levels.

Census data shows that Home ownership has continued to fall among younger Australians. Only 36 per cent of people aged 25-29 said they owned their home outright or with a mortgage – likely the lowest level since at least the 1960s. Home ownership for the next age group, 30-34, also declined, to 49 per cent, which is likely another record low.

Overall inequality in Australia is rising, between those who have property and those who do not. Australia has prominent examples of economic policies that disproportionately benefit the upper-middle class, such as the capital gains tax discount and superannuation tax incentives. We also have a geographically concentrated income distribution, with the rich living in neighbourhoods with other rich people. The poor are also more likely to live in close proximity to people who share their disadvantage.

There were major changes to mortgage rates and underwriting standards this week, with many following the herd by lifting rates for interest only borrowers, especially investors whilst making small downward movements in principal and interest loan rates, especially at lower LVRs.

NAB will start automatically rejecting customers who want to borrow a high multiple of their income and only pay interest on their home loan, amid concerns over the growing risks created by rising household indebtedness. While NAB already calculates loan-to-income ratios when assessing loans, it has not previously used the metric to determine whether a customer gets a loan, and such a blanket approach is unusual in the industry.

We have maintained for some time that LTI is an important measure. It should be use more widely in Australia, as it is a better indicator of risk than LVR (especially in a rising market).

Several more banks tweaked their mortgage rates this week. Virgin Money for example increased its variable and fixed rates for new owner occupied loans for LVRs of over 90% by 35 basis points or 0.35%, and increased its standard variable rates for owner occupied and investment interest online loans by 25 basis points.

Auswide Bank announced an increase to their reference rates for investment home loans and lines of credit of 25 basis points from 11 July 2017 will result in a new standard variable rate (SVR) of 6.10%. They blamed funding pressures and regulatory limits on investment and interest only lending.

ING Direct changed their reference rates, for owner-occupier borrowers, the principal and interest rates will decrease by 5 basis points. But for owner-occupier borrowers, interest-only rates will increase by 20 basis points and investor borrowers on interest-only loans will cop a 35 basis point rise. They are also encouraging borrowers to switch to principal and interest repayment loans.

Bendigo Bank lifted variable interest rates by 30 basis points for existing owner occupied interest only customers and 40 basis points for existing investment interest only customers. They also lifted business loans with new business interest only variable rates up by 40 to 80 basis points and fixed interest only rates increasing by 10 to 40 basis points. On the other hand, new Business Investment P&I variable rates will decrease by 15 basis points and fixed P&I interest rates decreased by 30 basis points.

The RBA held the official cash rate at 1.5 per cent for the tenth time on Tuesday. It hasn’t moved since a 25 basis point cut in August 2016. But Analysis shows that the gap between the RBA rate and the standard rate banks quote to mortgage borrowers is around the widest in 20 years. The Banks did not pass on the full benefit of the RBA’s record-low rates in order to offset costs and prop up profits. Last year there was a massive race to the bottom in terms of discounts to try to gain volume and share. Many banks dented their margins in the process. But now they’ve now got the perfect cover, thanks to APRA’s regulatory intervention, and so we expect to see mortgage rates continuing to grind higher, particularly for investors and anyone on interest-only. This will simply lead to more mortgage stress down the track whilst the banks rebuild their profit margins. Another example of inequality.

And that’s the Property Imperative to the 8th July. Check back again next week

City planning suffers growth pains of Australia’s population boom

From The Conversation.

Australia has the highest rate of population growth of all the medium and large OECD countries. And more than three-quarters of the growth is in four cities: Sydney, Melbourne, Brisbane and Perth. But urban planning for this growth is often inadequate.For a start, attempts to reduce infrastructure costs and save agricultural land by imposing urban growth boundaries have foundered.

In Melbourne, the statutory urban growth boundary has repeatedly been pushed outwards. The city is struggling to meet its urban consolidation targets.

In Brisbane, a 2015 University of Queensland study found well-connected individuals own 75% of rezoned greenfield areas but only 12% of comparable land immediately outside the rezoning boundaries. The researchers conclude that rezoning was primarily driven by these landowners’ relationship networks.

In turn, planning is failing to protect high-value environments from urban development. Policies to preserve koala habitat around Brisbane have failed. Land clearing has increased since 2009.

And in Western Australia, under Perth’s draft strategy, 50% of the remaining feeding habitat of the endangered Carnaby’s black cockatoo and 98 square kilometres of banksia woodland will be lost.

Despite their expanding area, Australian cities have less green open space. In attempts to reduce the costs of new infrastructure to meet the needs of increasing populations, average housing block size has been reduced.

New suburbs have virtually no backyards because the planning process has failed to mandate minimum garden areas. The result is urban heat islands that lack greenery and recreation space.

Costly housing of poorer quality

Rising populations require more infrastructure. In Australia, the developer contributions required to fund new local infrastructure are passed on to new home buyers in the form of higher house prices, reducing affordability.

Alternative methods could eliminate up-front hits on new home owners. An example is benefit assessment districts, where infrastructure is funded by bonds and repaid by the beneficiaries over decades. But state governments are resistant to this because new public loans are seen as a threat to state credit ratings.

Governments are also reluctant to use value capture, which involves applying a levy on increased property values arising from greenfield or brownfield rezoning. The levy proceeds pay for infrastructure or affordable housing.

Governments have seen such a levy as increasing developer costs and thus decreasing affordability. However, if value capture is signalled in advance, developers will reduce the price they pay for new sites to take account of the levy. In high-cost London, affordable housing targets of 35% have been applied to developers, compared to the 5% proposed for Sydney.

Furthermore, poor planning for high-density developments in Melbourne has allowed developers to meet increased population demand by constructing “vertical slums” of micro-apartments of under 50 square metres with windowless bedrooms.

Such developments are illegal in comparable world cities. A recent report found that weak planning controls have allowed Melbourne’s high-rise apartments to be built at four times the densities allowed in Hong Kong, New York and Tokyo.

Due to the supposed effects on affordability and saleability, developers are not being required to provide new open space for higher-density urban populations. In some cases, these services aren’t being funded because governments set caps on developer contributions to local infrastructure to reduce dwelling costs.

According to the Local Government NSW association, necessary state government infrastructure for higher population densities is often lacking too.

Politics of traffic

Urban population growth forecasts are driving estimates of huge increases in traffic congestion costs. However, electoral politics are also overriding pro-public transport strategies such as metro rail.

Three major motorway projects initiated during the Abbott era in Sydney, Melbourne and Fremantle cut through left-leaning inner-city electorates, while appealing to outer-suburban swing voters.

Inner-city motorway developments are still proceeding. WestConnex (Sydney), Western Distributor (Melbourne) and Legacy Way (Brisbane) are driving investments in private profit-making transport infrastructure. Comparable cities overseas, such as San Francisco, Toronto, Vancouver and Los Angeles, stopped building inner-city motorways years ago.

The business cases for new motorways also omit significant community costs. In the case of WestConnex, these include:

the costs of the extra sprawl induced by longer but quicker commuting trips;

the time and revenue costs of capturing tens of thousands of daily public transport trips; and

loss in value of properties near to interchanges.

Deficient business cases caused four inner-city motorways – Cross City Tunnel, Lane Cove Tunnel, Clem 7 Tunnel and Airport Link – to go into receivership in the last few years, as the demand was never there.
Overstretched public transport services are a source of rising political tensions. AAP/Joel Carrett
Hostage to the Growth Machine

Part of the problem is Australia’s acute vertical fiscal imbalance.

For instance, 80% of Sydney’s taxes go to the Commonwealth, not the state government. This means the federal government reaps the income gains from bigger city populations, while the states lack the resources to provide adequate urban infrastructure and services for these growing populations.

Perhaps the shortcomings of planning resulting from the need to accommodate fast-growing populations could be mended with reduced growth.

But Australian cities show all the symptoms of Molotch’s notion of a Growth Machine: a large cast of actors – the development industry, property owners and many more – have a vested interest in continued rapid population growth, and lobby to keep that growth going.

Author: Glen Searle; Honorary Associate Professor in Planning, University of Queensland and, University of Sydney

China’s Cooling Housing Market Set to Weigh on Economy

China’s housing market is likely to continue to cool in response to stronger restrictions on home purchases across many cities and tighter credit conditions, say Fitch Ratings. Housing is the key cyclical sector in the Chinese economy, and will weigh on growth in the second half of the year and into 2018.

There is already evidence that the housing market is slowing. Growth in new residential property sales decelerated to 24.0% yoy (on a trailing 12-month basis) in May 2017, down for the fifth straight month from the 36.2% peak in December 2016. Price gains have also moderated. Secondary home prices in Tier 1 cities rose by 28.7% in 2016, but increased by just 3.6% in the first five months of 2017, and fell for the first time since September 2014 in May.

The downturn has been policy driven, with the authorities stepping in to prevent excessive froth in the market. Tightened rules on home purchases and mortgages are curbing buying by speculators and upgraders. Some first-time buyers might also be postponing purchases in the expectation that prices may fall. Meanwhile, the increased focus of the authorities on controlling leverage and limiting financial risks has led to a significant rise in money-market interest rates since last December, and some banks have recently increased mortgage rates.

The near-term outlook for China’s housing market is closely linked to the domestic credit cycle. As the chart below shows, housing sales move broadly in line with the “credit impulse” – or the change in the flow of new credit (including local government bonds) as a share of GDP. A weaker credit impulse, along with the tightening of home purchase restrictions, is likely to drag down home sales growth further in 2H17.

That said, the government will want to avoid causing significant volatility in the market. Home sales dropped by 9% yoy in early 2015, following the last tightening of restrictions, which contributed to a strong release of pent-up demand when policies were subsequently relaxed. We expect a more cautious approach this time, which is likely to result in home sales stalling, but not falling, in 2H17.

House prices are likely to decline slightly in 2H17, as demand weakens. We expect prices in Tier 1 cities to hold up better than in lower-tier cities. Prices in Tier 1 cities have risen by almost 90% in the last four years, compared with increases of 10%-25% in lower-tier cities. However, demand in Tier 1 cities remains strong and land supply is tight, which gives the authorities more scope to support the market if the downturn is sharper than expected. In lower-tier cites, demand is weaker and developers’ housing inventories are higher.

A likely weakening in the housing market is one of the main reasons behind our forecast that GDP growth will slow in 2H17. Investment in housing alone accounts for around 10% of GDP, and most estimates place its contribution to GDP much higher once supporting industries are included. There tends to be a six- to eight-month lag from sales to housing investment growth, which means that the economic impact of the housing market slowdown will continue well into 2018, when we expect GDP growth to slip slightly below 6%.

Australian housing `bubble’ fears overblown, HSBC economist says

From Mortgage Professional Australia.

(Bloomberg) — Soaring home prices in Australia’s biggest cities are driven by strong demand and a lack of supply, rather than indicating a “bubble,” according to HSBC chief economist Paul Bloxham.

“At a national level, a key reason for rising housing prices has been housing under-supply,” Bloxham wrote in a research note on Thursday. “This also suggests that a significant fall in Australian housing prices, as occurred in the U.S. and Spain during the global financial crisis, is unlikely.”

Five years of red-hot growth have left prices in Sydney and Melbourne up 80% and 60% since mid-2012, fueling bubble concerns. In June, Moody’s Investors Service cut the long-term credit ratings of the major banks, saying surging home prices, rising household debt and sluggish wage growth pose a threat to the lenders.

Bloxham, a former staffer at the Reserve Bank of Australia, said that “fundamental factors” largely explain the price boom and, “as a result, we do not judge it to be a bubble.”

Demand for housing in Melbourne and Sydney has been supported by domestic and international migration, foreign investment and a lack of new supply, he said. Price increases have been much smaller in places such as Perth, where demand has been weaker amid the waning of a mining boom.

APRA has gradually been ratcheting up restrictions on riskier loans and in recent months the big lenders have all raised interest rates charged on interest-only loans. Bloxham said he believes these regulatory measures will help cool the market, along with lower demand from overseas and increased supply.

Census makes it official: young Australians are priced out of home market

From The New Daily.

Home ownership has continued to fall among younger Australians, the latest census has revealed.

The Australian Bureau of Statistics provided data to The New Daily on Thursday that confirmed home ownership among the classic ‘first home buyer’ demographic – those aged 20 to 39 – declined again in the 2016 census.

It showed that only 36 per cent of people aged 25-29 said they owned their home outright or with a mortgage – likely the lowest level since at least the 1960s.

Home ownership for the next age group, 30-34, also declined, to 49 per cent, which is likely another record low.

And 35 to 39 year olds also dropped to 58 per cent, down from 61 per cent in the previous census in 2011.

The data is similar to that provided by the ABS to Tim Colebatch at Inside Story.

In fact, rates of fully paid or mortgaged home ownership declined in all groups up to the age of 64.

Overall rates of home ownership did not drop dramatically between the 2011 and 2016 census, as older age groups – which are gradually accounting for a larger share of the population – actually increased their ownership.

The cause may not be as simple as many think.

Similar analysis of home ownership rates by Dr Judith Yates, one of Australia’s leading housing economists, apportioned more than a small part of the blame to growing economic inequality.

Dr Yates provided an estimate of ownership rates to a Senate inquiry in 2015, along with a detailed explanation of the causes.

In her submission, she blamed many of the usual culprits, such as declining rates of marriage and fertility among young people (which makes them less eager to buy homes), rising prices, tax concessions for investors, the scarcity of urban land for development, and demand pressures from population growth.

But Dr Yates characterised several of these factors in a way many others had not: as a consequence of worsening income and wealth inequality, beginning in the 1970s, which she dubbed “The Disappearing Middle”.

“Increasing inequality continued through from the mid-1990s until the late 2000s, having accelerated between 2003-04 and 2009-10 as a result of its uneven economic growth generating disproportionate benefits for those in the top half of the income distribution,” Dr Yates wrote in her 2015 submission.

“Disproportionate growth in incomes at the top end of the income distribution meant increased borrowing capacities for households with high home ownership propensities.”

Her submission also blamed the increasing income disparity on uneven economic growth; high inflation and high interest rates in the 1980s; the burden of HECS debts; and the fact that the financial liberalisation of the 1990s “benefited high-income households”.

“Encouraged by persistent and high capital gains from the mid-1990s generated by population and real income growth and underpinned by housing supply shortages, established households – the primary beneficiaries of increasing income and wealth inequalities – increased their demand both for owner-occupied housing and, increasingly, for investment housing.”

Dr Yates noted that tax concessions for landlords, such as negative gearing and the capital gains tax concession, are also “biased towards high-income households”.

In a way, this is good news. The fact that most of Australia’s mortgage debt is held by “high-income, high-wealth households”, as Dr Yates put it, makes the economy less likely to undergo a US-style mortgage crash, as the Reserve Bank has noted many times, because that global crisis was driven by a boom in lending to low-income households.

The bad news, confirmed by the latest census, is that younger Australians are increasingly squeezed out of the market, not just by demographic change, but by the greater accumulation of wealth at the top of society.

As Dr Yates wrote: “These are the households with an economic capacity to outbid many potential first home buyers and who benefit from tax privileges that provide them with an incentive to do so.”