1.

Main features of the Housing Market

1.1 Factors that are taken into account
To examine the housing affordability issue in Australia, there are 6 major factors that are essential for consideration. These factors include dwelling prices or rents, interest rates (the cost of loans), household income, the supply and demand of housing as well as demographic location. The flow chart below reveals the relationship of each factors and how they assist us in concluding whether houses are affordable for Australians.

Supply of Housing

Dwelling prices/rents

Affordability

Interest Rates

Demand for Housing

Household Income

Demographic Factors

Sources:

1.2 Housing Price Index

1.2.1 Housing Price Index in Australia

HPI definition
HPI is short for the Established Housing Price Index which covers transactions in detached residential dwellings on their own block of land regardless of age (i.e. including new houses sold as a house/land package as well as second-hand houses). Price changes therefore relate to changes in the total price of dwelling and land. (Reference ABS)

The Figure 1 shows the trend of housing price of weighted average of 8 capital cities in Australia during 1986-2005. The base year is 1990=100.During late 1980s the HPI was growing from about 60 to all the way 100 in 1990.Since 1990s, there was an slow increase in HPI for a decade with about 150 in the end of the 20th century. From the beginning of the 21st century, the HPI rose by about 100 points to 250 in 2004 and remained stable in 2005. In other words, the HPI went up by 66.7% since 2000. Therefore, the dramatic rise in HPI reveals that it is increasingly difficult for people to afford houses in recent years.

1.2.2 Housing Price Index in Eight Capital Cities

The Figure 2 shows the percentage changes in HPIs of eight capital cities during three decades. It is clear that in 1990s the growth rate of HPI was generally below 5% except the Darwin with highest increase of 7.4%. That is to say, the housing prices in the 1990s were growing stably. Therefore, it was much easier for people to afford. Compared to the 1990s, the growth rates of 1980s were much greater than those of 1990s except that of Darwin with a minimal rise of 0.4%. On the other hand, the 21st century saw an overall more than 10% growth in HPI of each capital cities with Darwins HPI remaining stable. Notably, since 2000 Adelaides HPI rocketed by around 16.8% which was 10 times of that in 1990s. The growth of Brisbane, Perth, Hobart and Canberra ware around 5 times of those in 1990s. Similarly, the growth of Sydney and Melbourne were 3 times more than that of 1990s. That means that the boom in HPI during 2000-2005 is causing people to have trouble affording the houses.

1.3 Household income trends from 1994-2008Weekly Mean Income $

The Figure 3 demonstrates the Australian household weekly income during 19942008. As we can see, the weekly family income climbed slowly from $600 in 1994 and kept increasing, peaking at $800 in 2000. After 2000, the household income saw a slump to $500 in 2001 and then picked up and grew to above $800 in 2008. As shown in Figure 1, the HPI still rose despite the sharp decline in household income during 2000-2001. That means that the housing prices were too high for people to accept.

1.4 Tenure and Landlord Type 1.4.1 Owner Without/With a Mortgage in Australia

The Figure 4 shows the percentages of owner with and without a mortgage in Australia during 1996-2008. In 1996, there were 22.5% of people buying houses with mortgages compared to a larger proportion of owner without a mortgage. The percentage of owner with a mortgage went up markedly until 2000 where the proportion of the house purchasers with a mortgage equaled that of house owners.

This could be due to the sharp drop in household income in 2000. Since then, the percentages of owner and purchaser with a mortgage grew fast with a peak of 38% without a mortgage and 33.2% with a mortgage in 2001. Since 2001, the amount of people who could afford the houses decreased whereas that of buyers with a mortgage increased. Notably, during 2002-2003, the percentages of the two types intersected at 34.6% in 2002. From 2005 on, the proportion of owner with a mortgage was becoming smaller than that of owner with a mortgage .Worse still, the gap between them has been enlarged , which formed in sharp contrast with the steady rising household income in recent years.

1.4.2 Owner Without/With a Mortgage in Sydney and Canberra According to Table 7, Sydneys and Canberras household income are overall highest among other capital cities. Lets examine whether more owner without a mortgage than that with a mortgage in these two cities.

Figure 6 describes that in Sydneys housing market, the number of house owners were much larger than that of house purchasers with a mortgage until 2006 where the increasing amount of people could not afford the houses without assistance of banks.

The figure 7 indicates that there was a general upward trend in the proportion of house owners with ups and downs and a peak at 33.7%, whereas the amount of purchasers with a mortgage was larger than that of the former and continued to rise remarkably until 2000 when the proportion of owner with a mortgage remained stable around 40% 1.4.3 Landlord Type

Figure 9 illustrates the proportion changes of the two major landlord types in Australia during 1996-2008. The state/territory housing authority accounted around 5% of the total renters. However, the amount of private landlord increased smoothly.

That is to say, there were an increasing number of tenants, which reflected that much smaller amount of people could afford houses.
Tenure and Landlord Type (1996-1997) in 8 Capital Cities and Australia as a Whole Tenure and Landlord Sydne Melbourn Brisban Adelaid Pert Hoba Darwi Canberr Aust type y e e e h rt n a . Owner without a mortgage (%) Owner with a mortgage (%) Renter State/t erritory housing authority (%) Private Landlord (%) 4.9 2.5 3.5 8.1 3.2 7.6 15.0 9.1 4.4 19.1 22.6 23.5 23.1 28.4 27.7 25.0 29.6 22.5 28.0 31.7 27.5 31.9 27.5 30.3 11.8 23.3 29.1

22.8

19.7

22.1

16.7

18.2

18.1

22.8

21.7

20.7

Tenure and Landlord Type (1997-1998) in 8 Capital Cities and Australia as a Whole Tenure and Landlord Sydne Melbourn Brisban Adelaid Pert Hoba Darwi Canberr Aust type y e e e h rt n a . Owner without a mortgage (%) Owner with a mortgage (%) Renter State/te rritory housing authority (%) Private 4.4 3.3 4.6 8.5 4.1 5.6 15.6 10.6 4.8 19.6 27.0 27.2 27.3 26.7 26.4 20.2 28.4 24.5 29.1 29.6 24.6 27.9 29.4 32.8 10.9 23.7 28.3

20.6

18.4

24.6

14.8

18.3

16.2

22.6

19.3

19.6

Landlord (%) Tenure and landlord type (1999-2000) in 8 Capital Cities and Australia as a Whole Tenure and landlord Sydne Melbourn Brisban Adelaid Pert Hoba Darwi Canberr type y e e e h rt n a Owner without a mortgage (%) Owner with a mortgage (%) Renter State/t erritory housing authority (%) Private Landlord (%) 4.4 2.5 3.8 7.9 3.8 *6.3 *7.7 8.8 4.2 22.6 25.3 27.0 27.5 32.9 26.9 31.3 35.2 27.3 28.4 30.4 22.5 28.0 23.3 30.7 *14.5 21.3

Aust . 27.3

22.3

18.2

24.6

18.5

21.2

19.3

22.8

18.8

20.8

Tenure and landlord type (2000-2001) in 8 Capital Cities and Australia as a Whole Tenure and landlord Sydne Melbourn Brisban Adelaid Pert Hoba Darwi Canberr type y e e e h rt n a Owner without a mortgage (%) Owner with a mortgage (%) Renter State/t erritory housing authority (%) 5.0 4.0 5.7 6.1 3.4 12.8 15.4 7.0 30.4 34.9 30.2 36.0 37.7 23.7 30.5 41.6 40.1 39.9 32.7 38.3 34.9 45.0 21.1 33.7

Aust . 38.0

33.2

5.0

Private Landlord (%)

22.6

18.8

28.0

15.2

21.4

15.3

28.0

16.0

21.2

Tenure and landlord type (2002-2003) in 8 Capital Cities and Australia as a Whole Tenure and landlord Sydne Melbourn Brisban Adelaid Pert Hoba Darwi Canberr type y e e e h rt n a Owner without a mortgage (%) Owner with a mortgage (%) Renter State/te rritory housing authority (%) Private Landlord (%) 31.5 35.9 34.8 36.1 39.5 33.3 39.8 40.8 34.8 38.0 30.3 34.5 33.6 38.9 16.0 28.2

Aust .

34.6

34.9

4.9

2.8

3.9

8.2

4.4

*8.0

*9.6

9.2

4.6

25.8

21.1

26.9

17.0

20.4

16.5

28.2

20.4

22.9

Tenure and landlord type (2005-2006) in 8 Capital Cities and Australia as a Whole Tenure and landlord Sydne Melbourn Brisban Adelaid Pert Hobar Darwi Canberr type y e e e h t n a Owner without a mortgage (%) Owner with a mortgage (%) Renter State/t erritory housing authority 5.4 3.4 4.3 8.8 3.9 6.4 10.7 8.0 35.9 35.6 34.9 34.6 41.9 35.8 39.6 42.5 30.5 34.8 33.1 33.7 28.9 36.1 17.7 27.3

Aust .

32.1

36.5

4.9

(%) Private Landlord (%)

25.0

23.1

24.0

20.2

20.8

17.0

21.8

19.4

23.1

Tenure and landlord type (2007-2008) in 8 Capital Cities and Australia as a Whole Tenure and landlord Sydne Melbourn Brisban Adelaid Pert Hoba Darwi Canberr type y e e e h rt n a Owner without a mortgage (%) Owner with a mortgage (%) Renter State/t erritory housing authority (%) Private Landlord (%) 36.51 33.89 36.91 38.2 28.04 34.78 31.20 32.54

Aust .

31.4 5

39.44

17.78

30.53

31.3 8

36.2 5

32.51

36.49

40.29

35.9 9

5.45

2.93

3.78

8.29

4.57 24.6 1

9.51

10.62

8.55

5.57 25.2 0

27.74

25.71

25.43

19.11

15.85

29.79

17.25

1.5 Supply and Demand for Housing

To roughly estimate the relation between demand and supply, the method of comparing the population growth and Approved Dwelling Units growth is utilized. Figure 2 displays the trend of population of eight capital cities and Australia as a whole between the 2001 Census and 2006 Census. It is clear that 6 out of 8 capital cities saw a slight increase in population while Perths population declined significantly by 17.47% and Darwin experienced a minor decrease. However, Australia experienced an overall growth in population. Figure 3 illustrates the total number of dwelling units approved in the eight capital cities and Australia as a whole from 2001 Census to 2006 Census. To enable accommodation for the increase in population, it is expected that the number of dwelling units would increase. This was not the case. It is should be noted that Sydney experienced a growth of 3.05% regarding population but the amount of residential places approved decreased sharply by 39.87%. Thus it can be concluded that housing supply did not

match the increase in demand, this enabled housing prices to be driven higher and higher. (Therefore, the demand for housing in Sydney was hardly met by supply, thus driving the housing price higher and higher.) In other capital cities (excluding Melbourne) tension like this was not experienced. My suggestion is that the population in Sydney and Melbourne could be encouraged to migrate to other capital cities like Brisbane where supply of housing is sufficient.

Appendix

Table 1 Housing Price Index in Australia(1986-2005) Years Price Index of Established Homes --Weighted Average of 8 Capital Cities 61.789 64.75 79.35 98.9 100.475 103.05 104.725 107.425 111.3 112.65 113.525 118.05 126.75 135.925 147.225 163.75 193.225 228.325 251.35 252.05 % change in HPI

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

4.7921 22.5483 24.6377 1.5925 2.5628 1.6254 2.5782 3.6072 1.2129 0.7767 3.9859 7.3698 7.2387 8.3134 11.2243 18 18.1654 10.0843 0.2785

Table 2 Average HPI Growth Rate of Eight Capital Cities Sydney 1980s(%) 1990s(%) Since 2000(%) 23.8 4.2 14.2 Melbourne 15.8 3.8 12.4 Brisban e 14.3 3.2 19.9 Adelaide 5.1 1.6 16.8 Pert h 19.9 2.5 12.1 Hobart 6.48 2.3 10.3 Darwin 0.4 7.4 7.4 Canberra 8 2.9 15.9

Table 3 Housing Price Index of Capital Cities from 1986-2005 Years 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Sydne y 53.9 58.1 79.3 100.9 99.9 102.9 104.7 106.9 111.9 114.8 116.9 122.1 133.8 144.7 159.4 174.9 212.1 250.8 269.7 261.9 Melbourne 64.4 67.6 78.5 99.1 98.4 95.8 92.4 94.1 96.6 97.7 99.2 106.6 120.4 135.6 149.6 178.1 204.6 229.0 237.2 234.5 Brisbane 63.8 65.4 76.3 94.4 107.0 121.6 132.4 136.3 139.5 138.0 136.7 137.9 140.3 141.2 145.4 155.0 190.0 243.3 298.1 303.1 Adelaide 82.7 83.5 88.2 95.9 102.5 106.7 107.4 110.6 111.1 110.1 107.5 109.7 113.5 118.1 126.3 139.2 164.8 202.9 233.9 247.2 Perth 57.8 61.0 74.7 98.3 98.2 93.6 96.1 100.8 107.8 108.9 107.8 111.6 115.4 122.3 129.9 138.6 153.8 180.7 204.9 221.2 Hobar t 80.6 83.1 88.6 97.2 102.5 110.0 113.6 119.4 126.4 129.5 129.9 125.7 125.0 125.1 132.7 135.5 146.7 172.3 195.0 197.1 Darwin 98.8 97.0 95.9 100.0 104.8 111.7 123.1 145.0 167.8 183.6 191.7 200.6 194.4 196.6 198.7 200.6 210.3 228.2 263.4 280.8 Canberra 78.1 76.9 87.7 97.8 102.9 115.9 129.9 134.8 132.9 128.9 127.1 125.7 127.0 131.0 143.0 159.7 188.2 231.7 257.3 260.9

Table 5 Number of Dwelling Units Approved, By Capital City Statistical Division(1996-2005)

Sydney

Melbou rne

Brisba ne

Adelaid e

Perth

Hobart

Darwin

Canber ra

Total

1997 15,291 1998 15,395 1999 16,874 2000 12,326 2001 12,018 Total (2001 Censu s) 2002 11,919 2003 10,360 2004 8,187 2005 6,809 20,599 19,746 11,091 9,416 5,491 4,970 13,309 14,414 1,054 941 371 452 1,009 1,062 22,752 13,565 5,662 14,151 1,042 306 1,652 24,394 12,869 5,856 12,750 946 377 1,641 71,904 106,08 4 49,197 22,937 56,165 2,758 2,834 6,092 22,623 10,468 5,045 11,112 616 389 1,077 20,571 8,687 4,417 9,874 523 298 1,285 24,286 9,732 5,151 13,914 571 601 1,373 20,950 9,713 4,303 11,522 519 848 1,200 17,654 10,597 4,021 9,743 529 698 1,157

59,690

64,450

72,502

57,981

63,348

317,97 1

70,752

69,490

61,111

57,810

2006
5,959 18,264 9,682 4,961 14,203 1,038 529 1,197 55,833

Total (2006 Censu s)

43,234

105,75 5

56,623

26,940

68,827

5,021

2,035

6,561

314,99 6

Table 6 Percentage Change in Household Average Weekly Income(1995-2008)

Years

Percentage Change in Household Average Weekly Income

-0.00164 0.073892 0.079511 0.101983 -0.35861 0.088176 0.064457 0.138408 0.320669

19951996 19961997 19971998 19992000 20002001 20022003 20032004 20052006 20072008

Table 7 Household Average Weekly Income in 8 Capital Cities and Australia as a Whole Years Sydney 19941995 19951996 19961997 19971998 19992000 20002001 20022003 20032004 20052006 20072008 643 634 685 Melbourne 604 594 637 Brisban e 592 574 617 Adelaide 536 580 574 Pert h 604 628 668 Hobart 548 556 619 769 Darwin Canberra 695 771 825 Aust. 610 609 654

749 818 528

690 772 498

737 753 456

585 681 442

671 755 487

565 642 421

804 922 630

813 949 581

706 778 499

574 618 712 914

541 570 658 833

513 532 673 910

494 543 617 746

516 545 663 877

450 536 597 686

575 643 730 883

642 669 712 1011

543 578 658 869

Table 4 Australian Population of Eight Capital Cities(Census Data) Sydney Populati on (2001) Populati on (2006) 4,119,1 91 3,592,5 91 1,763,1 31 1,105,8 41 1,105,8 41 200,5 25 105,9 91 323,05 6
12,316, 167

Melbour ne 3,366,5 42

Brisban e 1,627,5 35

Adelaid e 1,072,5 85

Perth 1,339,9 93

Hobar t 191,1 69

Darwi n 109,4 17

Canbe rra 311,51 8

Total
12,016, 080

3,997,3 21

Table Percentage Change of Population and Approved Dwelling Units

Sydne y

Melbourn e

Brisban e

Adelaid e

Pert h

Hobar t

Darwi n

Canberr a

Total

Populatio n Growth Rate (%) Growth Rate(%)o f Approved Dwelling Units

3.05

6.71

8.33

3.10

17.4 7 22.5 4

4.89

-3.13

3.70

2.50

-39.87

-0.031

15.09

17.45

82.05

-28.19

7.70

0.09 4

Table 5 Number of Dwelling Units Approved, By Capital City Statistical Division(1996-2005)

Sydney

Melbou rne

Brisba ne

Adelaid e

Perth

Hobart

Darwin

Canber ra

Total

1997 15,291 1998 15,395 1999 16,874 24,286 9,732 5,151 13,914 571 601 1,373 20,950 9,713 4,303 11,522 519 848 1,200 17,654 10,597 4,021 9,743 529 698 1,157

59,690

64,450

72,502