In The Know

Housing Affordability - The Other Side

You probably think you’ve heard all there is to hear about housing affordability – basically it’s a big issue and we’re in some pretty major trouble if we don’t sort it out. But is there another way?

We’ve been doing some thinking…
 

Roll up your sleeves...

Don’t expect to get something for nothing with this approach to housing affordability.

While Australians are craving that elusive “sense of community”, governments and developers are struggling to find the balance between affordable housing and public space. According to Craig Baynham, our Head Urban Designer, the concept of Sweat Equity may offer that balance between cheap and cheerful, revolving around the notion that people have to be ready and willing to work to create their communities.

Sweat equity uses community muscle to contribute to the development of collective facilities by teaching the recipients of affordable housing the skills to contribute to their public space. Whether they’re landscaping the local park or constructing a neighbourhood centre, the scheme has obvious social benefits, like up-skilling low income families with techniques they can take to the broader workforce.

Probably the most important component of Sweat Equity is that it creates a sense of pride and ownership in the public space, meaning residents are more likely to use and help maintain the area, helping to balance a sense of community with housing affordability.
 

Time is money...

Planning delays are one of the biggest gripes for developers – and now it’s possible to work out exactly how much time delays are costing home buyers. For every month your application is delayed at the assessment stage, the end user will pay about $500 more on top of their purchase price – which can easily push new home buyers into un-affordability.

In preliminary research done by THG’s Urban & Social Economics team, analysis has suggested that even small shifts in the regulatory assessment period can significantly affect housing affordability.

In a typical scenario, total holding costs equate to around $15,000 per lot, based on an 18 month assessment timeframe, a figure that can blow out to $40,000 if the timeframe extends to 5 years. These costs are then passed on to the home-buyer, potentially pushing their repayments up to 40% of their household income – which makes it more difficult to get a loan, make repayments, or achieve the dream of owning their own home.

This means good planning is even more important if we want to reduce the burden on councils and speed up the process.
 

Baby Boomers getting trendy...

Housing affordability is all about supply and demand. There aren’t enough houses being built to cater for the influx of people to the South East. But another possible dimension is the trend for Baby Boomers to live in inner city areas. In research done by THG’s Gary Garner and AHURI researcher Dr Hoon Han, population trends have shown that older age groups are not only wanting a sea change but a ‘C’ ('Closeness to Cafes and Culture') change.

Gary’s research, based on an analysis of census data from 2001 - 2006, suggests that the increasing number of oldies moving to the inner city areas are increasing the demand for this type of housing, thus pushing up the price.

These demographics make for an interesting discussion when we’re designing inner-city places.
 

Think small...

Why are so many people struggling to buy a house these days? Blame it on supply and demand factors, interest rates, government policy or just poor planning. However, research by THG’s Urban & Social Economics team suggests that the problem may be purely perception.

Let’s just look at Generation Y. With very high expectations about their first home, they’re looking for 3 bedrooms and 2 bathrooms and often aren’t prepared to settle for less.  Little wonder Australia has one of the largest average home sizes in the world.

It’s time for some re-education. Research suggests that residential accommodation can work on floor areas down to just 50m sq which is large enough to live in but small enough to heat and cool efficiently in sunny Queensland.
 

Why 'build it and they will come' is no longer a successful strategy...

While many are expecting that property prices will soften in the short term due to the current global economic crisis, the medium to long term picture for affordability is increasingly dire. The imbalances in the supply demand equation are intensifying. Approvals for attached dwellings in Australia for the 12 months to November 2008 decreased by 51% and an increasing proportion of projects are failing to commence because of financial difficulties. While we are seeing an increased number of first home owners entering the market, investors are fleeing, hence the availability of rental properties is continuing to decrease.

Due to the global economic crisis, affordability is no longer the sole domain of the low income earner.

Over the last decade Australians invested heavily in the stock market, it is fair to surmise that these Australians (the majority of us) have seen their net worth decrease over the last 12 months, with the average listed stock portfolio decreasing in value by circa 23% and 30% for balanced and growth portfolios respectively. Affordability is now an issue for the entire market.

Developers can no longer rely on the old adage of “build it and they will come”, everyone is going to be increasingly price sensitive. The rate at which a developer sells stock is going to be well down on the levels they became used to over the last decade and it will be increasingly key that they are providing the correct product to the market so that there is no lag in take up. Subsequently it will be key that a considerable level of research and thought is put into the phasing of their projects to ensure that developers are not faced with the exorbitant costs associated with having to retain unsold stock, not suitable for their market, for an extended period.

This article (read the whole paper here) was written by THG's newest team member, Richard Katter. His experience in market research spans Australia, Europe and the UK with particular emphasis on likely buyer types, optimal mix of stock and product pricing.
 

Think we’re on to something? Even if we’re completely off track, let us know what you think by flicking us an email or giving us a call.