Monday, January 24, 2011

Melbourne housing now "severely unaffordable"

The writer, Chris Zappone below cited ratio of house prices to the median income of typical households. So, where are we in Kuala Lumpur? I don't have exact figures but if let's say we take median income in KL as RM60k per year, and median house price in KL and the suburbs like Subang Jaya as RM500k... then we have median house price 8.3 times our median annual salary. Still not as bad as Melbourne at 9.0, I guess... But apparently, London is 7.2 and LA is 5.9. So, we are still quite bad...


Chris Zappone
January 24, 2011
www.theage.com.au

Melbourne has scored near the bottom of an international ranking of housing affordability, stoking fears runaway house prices have made Australia a less equitable country.

Update The Demographia International Housing Affordability Survey, which ranked 325 markets by affordability, listed Melbourne as the world's 321st most affordable city, more reasonably priced than only Sydney and a handful of other locations.

London is more affordable than Geelong.

The ratio of house prices to median yearly household income was 9 in Melbourne, versus 9.6 in Sydney - the second least affordable city in the world, in spot number 324, according to data produced by the US-New Zealand anti-regulation group Demographia in a survey of six English-speaking nations and Hong Kong.

Advertisement: Story continues below The group put the median Melbourne house price at $565,000 with the median household income at $63,100.

Hong Kong came in last at number 325, with an income-house price ratio of 11.4, while Saginaw, in Michigan ranked No. 1, with a multiple of 1.6. Demographia considers markets with a median multiple of 3 or less "affordable", while those with 5.1 or more are considered "severely unaffordable". Australia's major markets were all considered "severely unaffordable''.

US-based geographer and author Joel Kotkin said that even after the housing bubble implosion in the US and Britain beginning in 2008, the ratio of home prices to incomes has grown in major cities such as Los Angeles, San Francisco, Boston, London, Toronto and Vancouver.

"Perhaps most remarkable has been the shift in Australia, once the exemplar of modestly priced, high-quality, middle-class housing, to now the most unaffordable housing market in the English-speaking world," he said. "The real issue is affordability and Australia has gone from a middle-class paradise in that regard into a more stratified society - just as we find in Britain and parts of the US."

Mr Kotkin, who has visited Australia extensively, described the trend as "neo-feudalism" that unravels the social achievement of spreading property ownership.

Demographia's report comes as Australian home prices are expected to show little growth in 2011, after double digit yearly growth as recently as 2010, driven by the slow pace of construction approvals, strong immigration, and an economy that hasn't experienced a recession in nearly two decades.

House prices plateaued in mid-2010, amid interest rate rises and a weaker pace of sales. The national city dwelling price fell 0.2 per cent in November, to $466,000, according to RP Data-Rismark information. Six in 10 Australians live in major cities.

The third quarter 2010 rankings were compiled from national housing reports and estimates drawn from census data on incomes, with calculations made in local currency.

Swelling cities

Separately, a report from the Department of Immigration and Citizenship calculates that if 260,000 migrants come to Australia per year, both Sydney and Melbourne will need to expand by 430,000 hectares, or 4300 kilometers by 2060.

“Expansion of urban areas raises issues such as likely increases in traffic congestion, city (air) pollution, and competition for land as a resource,” the report concluded. “The latter is an important issue since peripheral land of a number of capital cities has been relatively productive agriculture land, which can supply fresh food to the local area with lower freight requirements.”

The report on the physical impact of immigration was prepared by Flinders University and the Commonwealth Scientific and Industrial Research Organisation Sustainable Ecosystems Department of Immigration and Citizenship.

'Severely unaffordable'

The Demographia report showed Australian cities shared the mantle of “severely unaffordable” with American, Canadian, British and New Zealand cities.

Demographia listed Melbourne as the world's 321st most affordable city, more reasonably priced than only Sydney, which came in at 325th, and a handful of other locations.

The survey found that the ratio of house prices to median annual household income was 9.6 in Sydney. It put the median house price at $634,300 and median income $66,200.

Brisbane's affordability trailed London’s so-called exurbs, which stretch into neighbouring counties in east and southeast England. Queensland’s capital ranked 303 in terms of affordability, with a ratio of 6.6 per cent while the English markets were 297, with a ratio of 6.5 times.

The median house price in Brisbane was $447,500, while the median household income was $67,900.

Perth, ranked 291, with a 6.3 ratio, based on a $480,000 houses with a median household income of $75,700, lower than the New York City areas, which scored 289 on the list.

Better times ahead?

Sydney-based real estate research and investment group Rismark believes Australian homes will become more affordable through 2011, as incomes remain strong and house prices flatten out.

"As Australia's business investment and export boom drives strong household income growth at the same time as interest rates keep dwelling prices in check, we are likely to see a substantial improvement in residential real estate valuations," said Rismark joint managing director Christopher Joye.

By Rismark's calculations, the ratio of price to disposable household income ratio has dropped from 4.6 to 4.4 between the June and September quarters, as the median quarterly Australian home price fell from $418,000 to $405,000.

Rismark includes homes outside capital cities, apartments and attached units, and draws on income data that captures wealth generated from investments and multiple sources of revenue, when calculating house-price to income ratios.

Melbourne-based innovation research agency 2thinknow, which compares the social and commercial advantages of 289 cities worldwide, agreed with Demographia's assessment on Australia's affordability.

"Anything [with an income-house price ratio] above 5 is a high multiple - based on two incomes and the lifestyle flexibility to have children," director Christopher Hire said.

The impact means Australian cities receive low benchmarks in the world on 2thinknow's property prices in the Innovation Cities Index. Sydney ranks among the least affordable places, with a 0 out of 5 rating, on a par with San Francisco and Hong Kong, while Melbourne, Brisbane, Adelaide, and Hobart have a rating of 1.

"High property prices mean investment that should be in productive infrastructure or capital is spent on property," he said, leaving the country unprepared when the mining boom ends.

czappone@fairfax.com.au

7 comments:

Live Long MU Fan said...

Hi Sin Leong,
I always enjoyed reading your blogs, though I have yet to profit monetary from them.
Just wondering whether you can recommend top property bloggers like yourself for Malaysia, Singapore, Australia or worldwide trends....

sinleong said...

thanks... personally i have also yet to see any money from my properties... i keep buying more and more, hence i go deeper into "debts"

Anonymous said...

Hi Sin Leong,

I have also bought a few properties for rental income over the last four years. I am also like you said, going deeper into debt. At this point, I am not sure of continuing this (which I believe will eventually allow me to accumelate wealth) strategy because the price has at least increased 50% from 3 years ago but rental has remained almost the same. Besides, it is getting harder to secure loan.

Can you share how you manage these issues?

-VC

sinleong said...

hi VC,
IMO, ideally we want to get into a position where we have no debt AND 0 sum in the bank account - so that our money is out there in the form of properties, earning more money for us. What happens to me is, I get into a short of cash situation then decide to liquidate one of my properties. Then, when I get the excess cash in my bank account, I feel uncomfortable knowing that it is earning very little interests and worst, the value is eroded year on year due to inflation. Before long, I will spend that money on a deposit and down for another property, hence another loan.

SL

Anonymous said...

Hi Sin Leong,

It happen in almost the same way you describe to me last year... I was pushing the limit too much until I was worried with my cash flow everyday. I was buying a few properties at the same time. I swore then that I will not do the same again!

But know, most of the proporties are generating income... I am getting a bit restless. But the 70/30 loan ratio is making it hard for me to think about buying anymore in the near future. In fact, I dare not viewing any property to avoid myself getting into a position where I found a good property that I can't buy.

Any good advice? How to get more loan?

Thank!

VC

sinleong said...

If you have invested over a period of time, you would have paid off some of the earlier investments and use the mortgage to fund new investments. I think, all investments have to be sustainable, irrespective of whether it is a property investment, gold or stocks... However I agree with you that sometimes I myself get into a itchy situation to buy a property I wont be able to afford because I knew I just have to own it... Running away from property viewings is probably not a solution since it makes one depressed. Better to sorround yourself with sceptical relatives who keep reminding you it's not worth it

BlogHopper said...

Hi Sin Leong,

I like your advice of "Better to sorround[sic] yourself with sceptical relatives who keep reminding you it's not worth it". :)