‘Holding costs’ may be a threat
ACCORDING to accounting and wealth advisory group Chan & Naylor, the recent 3 per cent increase in value of the Australian property market, which now stands at just over $5 trillion according to some economists, is in line with previous historical cycles and is not a sign of a property market overheating.
The biggest cause of concern for Australian housing affordability however is the ‘cost to hold’ a property, which could become precarious for many people if near term interest rates rise above 6 per cent and national productivity improvements fails to gain momentum.
"A person’s ability to purchase and retain a property is a function of their ability to make repayments.
‘‘And with near record current low interest rates funding a mortgage is more feasible than it was 10 years ago when interest rates were double,’’ said Ken Raiss, a director at Chan & Naylor.
‘‘However with an inevitable rise in interest rates as the economy improves and continued growth in property value, Australia’s productivity must improve.
Failure for it to do so will result in less people being able to purchase or retain property."
Mr Raiss believes that the impact of property investors on the Australian property market has been overstated.
He also says that Australia is now at a crossroads where on one hand interest rates must necessarily increase as the economy improves and on the other the Government must aim to keep unemployment and inflation down by focusing on increasing real living standards through increased productivity which will lead to improved business outcomes leading to increased real wages and sustainable job opportunities.
‘‘The issue for value-oriented mum and dads is always going to be not what you get paid but what it gets you.
‘‘Therefore a near-future rate rise may seem anathema to many, but combined with a good dose of sensible economic reform it epitomises the ’tough medicine’ required to restore the country to pre-2007 fitness,’’ said Mr Raiss. ‘‘This is the formula that will negate property unaffordability over next 10 to 20 years.’’
Mr Raiss believes the government’s policy spotlight must be on creating an environment where interest and inflation are managed in concert at around 6 per cent and no more than 2.5 per cent respectively.
‘‘More collaboration between government, who is responsible for putting in place economic infrastructure, and business, who manage labour and raw materials, is required to create an atmosphere of enterprise,’’ said Mr Raiss.
‘‘Increasing productivity will enable more Australians to share in the growing property pie.’’
Meanwhile, the peak body representing the urban development industry has called on the government to use the 2014-15 Federal Budget to help boost investment in new housing and improve affordability for new home buyers.
In its Pre-Budget submission, the Urban Development Institute of Australia (UDIA) has recommended removing barriers to new land supply, increasing investment in infrastructure, reducing unnecessary red tape, and reducing excessive taxes and charges on new housing.
‘‘ Despite record low interest rates, the dream of homeownership is still out of reach for far too many households,’’ said UDIA national president Cameron Shephard.
‘‘We’re calling on the federal government to work with state and territory governments to address the problems holding up investment in new housing, such as constraints on land supply, poor investment in urban infrastructure, excessive red tape, and hefty taxes and charges. In addition to improving housing affordability, increased investment in housing will create new jobs, improve business activity, and add to government revenue.’’