Affordability is Australia’s most over-rated issue.

By Terry Rider

Introduction: Affordability is Australia’s most over-rated issue
The issue of affordability has become the biggest furphy in public debate in Australia.

It is a constant in daily media and it has become a favourite topic for posturing politicians.

Two very long and expensive federal inquiries have been held, allowing ambitious politicians to grandstand in front of television cameras – but nothing meaningful has changed. The Federal Government has targeted wealthy foreign investors have bought mansions in Sydney and Melbourne, apparently illegally, but that won’t make a single house cheaper in the suburbs of our capital cities.

Major taxation policy is being framed by the big parties around this subject but none of it addresses the real issues, such as the reality that over 40% of the cost of a new house-and-land package is taxation. In other words, politicians themselves are the biggest problem but they are quick to point the finger of blame at unpopular minorities like foreign investors.

The bottom line in this issue is that Australia does not have the “affordability crisis” that is claimed almost daily in mainstream media. In all of our cities and throughout regional Australia, buyers can find affordable real estate.

In this report, I outline the truth about housing affordability across Australia and in each of our major markets – and suggest places buyers could consider to buy both affordability and well, from the viewpoint of future growth.

Brisbane and Queensland 
Brisbane most affordable precincts are the leading growth markets

If you’re looking for affordable homes in the Brisbane metropolitan area, there are two pieces of good news. One, there are plenty of solid areas with affordable dwellings – and two, they’re all leading areas in terms of rising sales activity, which means they’re coming into a period of price growth.

The Brisbane market has had elevated activity for two years, without producing Sydney-style price growth across the board (although some pockets have had double-digit growth).

The improvement started in the inner-city and rippled out to the middle-ring suburbs both north and south of the Brisbane CBD. But in the past 12 months, the leading precinct for sales activity has been Logan City, in the far south of the metropolitan area.

Now the Moreton Bay Region in the far south is challenging Logan City for the No.1 spot. And Ipswich City in the far south-west has also put its hand up.

All three areas – the Logan, Moreton Bay and Ipswich municipalities – are good fits for one of the power combinations of real estate: affordability + infrastructure + jobs nodes = price growth.

Many of the suburbs in these precincts have median house prices in the $300,000s, with some in the $200,000s. Small units are in the $200,000s.

Logan City forms the urban bridge between Brisbane City and Gold Coast City. Three major motorways – the Pacific, Gateway and Logan motorways – intersect in Logan City and the commuter train link between Brisbane and the Gold Coast snakes through this municipality.

There are lots of major retail centres, including an Ikea Superstore, and plenty of jobs nodes. The major tourist theme parks including Dreamworld and Movieworld are just done the road.

The best places to consider are the older established suburbs with train stations and proximity to the motorways, retail centres, schools and jobs nodes – rather than new development areas inland, with no access to rail.

Moreton Bay Region is the northern mirror image of Logan City.

There are plenty of affordable apartments to be found throughout the Brisbane metropolitan area, but buyers need to avoid the inner-city market where vacancies are already high and destined to become much higher with high levels of new apartments under construction or being marketed off-the-plan. Most of being sold to distant investors, a clear signal to steer clear.

The Housing Affordability Index indicates that affordability has changed little in the past 12 months, either for Brisbane or for regional Queensland. And both are considerably better than they were five years ago.

There’s plenty of good value buying in regional Queensland. One opportunity that stands out is the Cairns unit market, where prices have dropped in recent years because of oversupply and are now attractively priced, with yields often above 7% (the highest genuine rental yields available anywhere in Australia).

The Cairns market is on a growth path, thanks for major spending on infrastructure, efforts by local civic leaders to diversify the economy and a strong tourism industry. The low Australian dollar is bringing in lots of visitors from overseas.

Investors should keep an eye on markets that are currently in decline, either because of oversupply, or the decline in the resources sector, or the growing use of fly-in-fly-out resources workers staying in temporary accommodation camps, or some combination of those factors. There will come a time when those markets bottom and the buying will be good, with an eye to future growth.

Mackay and Gladstone both fall into this category. I’m not suggesting that now is the right time to buy there, but that some time in the next year or so, the bottom of the cycle will be reached and prices will be attractively low.

Those two cities both have strong futures, but investors need to remember that they will always be volatile markets, because of their links to the resources sector. People who value safety and low-risk should never buy in these kinds of markets.

Most Australians are comfortable with their mortgages

Next time someone tells you that Australia is a country with an affordability crisis and households suffering from mortgage stress, refer them to the official figures on mortgage delinquencies, which means people behind on their repayments.

Mortgage delinquencies are currently 0.9%, according to Fitch Ratings. In other words, less than 1% of households with mortgages are behind on their repayments. Those who are 90 days behind are only 0.4% of the total.

Fitch analyst James Zanesi says that not only is this a record low for Australia, but it’s exceptionally low compared to other countries.

Other research has found that 75% of households with mortgages are ahead on their repayments. The average situation is two years ahead.

A recent survey of Australians who had recently bought homes as first-home buyers found that the vast majority felt very comfortable with their repayments. Indeed, most said they could deal with up to four interest rate rises (assuming rises of 0.25 percentage points) and still be comfortable making their repayments.

That makes sense because lenders assess borrowers’ ability to make repayments assuming that interest rates are 2 or 3 percentage points higher than current levels.

Media doesn’t give a great deal of prominence to his kind of research. It prefers fraudulent documents like the Demographia report, which claims that all of Australia is unaffordable.