Rapid population growth is being blamed for the housing affordability crisis in Sydney and Melbourne, reveals a new report by RiskWise Property Research.
Though the recent property market slump has improved asking prices and serviceability, housing continues to remain unaffordable in Sydney and Melbourne mainly due to an increase in population. Serviceability, which is measured by house-to-income ratio and mortgage serviceability ratio, is a major problem in the two capital cities, says RiskWise Property Research CEO Doron Peleg.
There has been a drop of 11 to 15 per cent in Sydney and Melbourne property prices, significantly improving affordability. However, NSW and Victoria continue to remain unaffordable.
“While housing affordability has improved, the price-to-income ratio as well as mortgage serviceability ratio is still very high. This is largely due to the strong population growth in these major cities that leads to price increases and, as we projected following the May election results, a removal of the uncertainty regarding political changes and the forecast taxation reforms had Labor won,” says Peleg.
“In addition, lending restrictions are not quite as severe, and this all means that dwelling prices in Sydney and Melbourne have slowly been increasing in value and are very likely to reach a new record within the next 12 to 24 months.
“The key problems we have are imbalances between house and unit supply compared to the very strong population growth in what are effectively global cities. This population growth is largely driven by strong employment opportunities in these multicultural cities that receive external migrants extremely well.”
For instance, price growth in NSW and VIC was positive in the past three years, despite the major downturn in the market and massive unit oversupply in many areas in NSW and Victoria. But the end of the mining boom hit Perth and Darwin hard with jobseekers leaving these states in search of employment, leading to a decrease in population numbers. House prices, as a result, have either stagnated or fallen further.
Factors such as job creation, improving economy and good infrastructure in Sydney and Melbourne would draw even more people to these cities and, therefore, increase demand for property, with population forecasters expecting both cities to hit the eight million mark by 2050, says Peleg.
In the current environment of high prices it would be way more difficult to compete with property investors, and first home buyers will find it difficult to put a deposit together and secure finance. Peleg expects investors to increase their activity in the market, putting further pressure on dwelling prices and housing affordability.
Peleg called for a strategic solution and co-ordinated plan by all levels of government to correct these market imbalances, especially the undersupply of suitable dwellings that force prices up and make them completely unaffordable.
“By reducing the population of major cities and encouraging people into regional areas, you affect supply and demand of housing and, therefore, affordability. If there is less demand, it follows that prices should drop,” he says.
“The solution is to encourage development of larger regional areas and ensure they are well serviced by infrastructure and jobs to attract people away from the traditional employment hubs.”