Interest rates and the “rent trap” are making home ownership little more than an elusive dream, sparking interest groups to call on the Federal Government to take action.
High proportion of disposable income is spent on mortgage repayments
Recent figures released by the Reserve Bank show households are paying a new record high proportion of disposable income just to make mortgage interest repayments, according to Shadow Federal Treasurer Wayne Swan.
Mr Swan said RBA figures released on 15 March 2007 show Australian households are now spending a record 9.3 percent of their disposable income simply paying off the interest on their mortgage. This measure, the Shadow Treasurer said, has increased by 76 percent since interest rates started rising in May 2002 and is 53 per cent more than the peak in September 1989 under Paul Keating.
“After eight rate rises on their watch, John Howard and Peter Costello still refuse to face up to the new interest rate reality: high household debt levels mean each interest rate rise packs a far bigger punch than ever before,” he said in a statement dated 16 March 2007.
Gen X & Y Aussies stuck in "rent trap"
Real Estate Institute of Australia (REIA) president Graham Joyce said Gen X and Y Australians are stuck in the "rent trap" and struggling to save a deposit for a first home purchase.
The REIA highlighted the March 2007 Vero Deposit Power/REIA Home Loan Affordability Report showed home loan affordability plunged in the December quarter 2006, with 35.2% of median weekly family income required to meet average loan repayments.
"A generation has grown up thinking that a property purchase may be out of reach – home loan affordability statistics seems to support this perception," said Vero spokesperson Denise Bofill. "However this generation may start to realise that soon, renting may also be out of their reach.”
Housing “stresses” placing pressure on low-income families - HIA
The Housing Industry Association (HIA) warned the continued decline in housing affordability, soaring rents and a higher incidence of mortgage stress are placing “unprecedented pressure” on lower-income families.
According to HIA Managing Director Ron Silberberg in a statement dated 28 February 2007, record low vacancy rates in rental accommodation and the resulting rent auctions are pushing lower-income Australian households closer to the poverty line.
The Residential Development Council (RDC)’s discussion paper, Boulevard of Broken Dreams, further revealed Australia as one of the least affordable places in the world, with housing affordability becoming a “worsening problem”.
Interest groups call for government action
Property interest groups such as HIA, REIA and RDC have called on all levels of government to take action against the housing affordability crisis by:
- removing impediments to the supply of affordable housing and providing incentives to encourage additional lower-cost private rental investment;
- cutting the exhaustive list of taxes and red tape which discourage investment in the rental market.
- reducing state property taxes;
- increasing concessions; and
- increasing the First Home Owners Grant
In response to these concerns, Federal Treasurer Peter Costello demanded property stamp duties be abolished to “stimulate” the property market.
But according to Mr Swan stamp duty cuts is not the final solution, as pressure still exists for those purchasing property which do not even reach the stamp duty threshold.
“If you look at the impact of those interest rate rises, they’ve added $88,000 to the cost of a home in Sydney of $450,000 and of course that’s a home in Sydney where a first home owner wouldn’t be paying any stamp duty at all,” he said on 20 March 2007, shortly after Mr Costello’s announcement.
The RDC however backed the Treasurer’s announcement and called on the issue to be discussed at COAG.
“The rate of increase in state and local government taxes on new housing has been phenomenal, not withstanding the rising GST revenues states are benefiting from,” RDC national executive director Ross Elliott said in a statement dated 20 March 2007. “If the issue is left unresolved, an entire generation of Australian’s will be locked out of home ownership.”