EDITORIAL FRIDAY 25.07.08. The housing market is in a right pickle. The report compiled by Fujitsu Consulting for Wizard Homeloans predicts that a million Australian households will be experiencing mortgage stress by the end of the year, amounting to a less than merry Christmas. The recent series of increases to interest rates have pushed many people across the line, and t looks as if there is more to come. While the Reserve Bank is not expected to increase rates again, there is the real prospect that the retail banks will do so of their own accord anyway.
If more people can no longer afford to buy a home, then more will be pushed into the rental market. The trouble is that we are already running out of rental properties. In fact there is a dramatic shortage of housing across the board. It is this shortage which has in part been keeping prices higher than they should be in relation to people’s capacity to pay for them. So here’s the bottom line: there are not enough houses, the houses we have cost too much to buy, and they cost too much to rent. At the same time, they cost too much to develop and build, so there is not enough investment to meet the shortfall. It is a catch 22.
It’s hard to see this dilemma being resolved without in some way deflating the price of housing, both to purchase and to rent. That means it will be a bumpy ride for investors who have bought into the market at the peak of the boom. To some extent that is already happening as house sales are slowing because they are priced beyond the reach of the people who need them.
Despite this, the simple fact is that people need a place to live. Somehow, we need to build more houses, as quickly as we can. Increased supply will make housing more affordable.
In order to do that it is essential that the ridiculous burden of developer charges is wound back. The total tax take on a new house and land package can be well over $100 000. That’s an outrageous amount of money, especially when it is supposed to pay for infrastructure and services that the consumer ALREADY PAYS FOR through taxes and rates. It is nothing more than government greed, and removing these charges will also make housing more affordable, while at the same time encouraging more investment.
If this doesn’t happen, and housing is not made more affordable, the upward pressure on wages will become irresistible and ultimately increase inflation even further, and that will only serve to undermine the value of everything.