Housing choices fuel affordability conundrum

The relentless march of suburbia and the desire of Australians to live in a house rather than an apartment might mean there is no option but for people to reside further from city centres, the Reserve Bank of Australia has told a housing affordability inquiry.

“One of the key challenges for supply is that as populations increase and cities expand, some households will need to live further away from the centre of major cities and/or accept further increases in higher density housing,” the RBA says in a submission to a parliamentary committee looking at supply and pricing.

The RBA, which last week told the inquiry that record low interest rates rather than dwelling supply issues are the primary driver of Australia’s property boom, also notes that COVID-19 is playing a major role in people’s housing choices.

These choices include wanting houses over apartments, and regions over cities. But how long these trends will last is impossible to know, making it difficult for policy-makers to plan with certainty.

“Some elements of the response to the pandemic could affect preferences between these choices, though it’s unclear how lasting these responses will be,” the RBA says.

“The ability to work from home for some households has increased the relative attractiveness of regional areas and neighbourhoods that are distant from city centres.

“The experience of lockdowns may also have made apartment living less attractive for some households.

“On the other hand, some other social distancing and movement restrictions may have made living closer to amenities more valuable.”

But one thing is clear: buying a house in the suburbs remains the goal for many Australians.

“Australia’s dwelling stock remains dominated by large detached housing, and around one million detached houses have been completed over the past decade,” the RBA says.

Nearly all new detached dwellings have been built in the outer suburbs and, while the size of houses has “declined a little in some states over recent decades, the average house in Australia still occupies over 200 square metres”.

Rental affordability is also identified as an “increasingly important issue”, with the RBA noting that the share of households which are leasing has increased from around one-quarter of the housing market in the late 1990s to at least one-third.

At the same time, home-ownership rates have fallen across most age groups, but the fall is most evident among the 25 to 49 demographic.

The RBA says rents in some markets, particularly apartments in or near the CBDs of Melbourne and Sydney, have declined since 2017, but overall leasing costs have drifted higher in the past five years.

“Over this period the gap between the median rent in capital cities and in more regional areas has closed in Australia’s most populous states,” the RBA says.

“Low-income households in regional areas around Australia’s largest cities are likely to have been affected by this shift.”

Highlighting the impact of low-interest rates, RBA economic modelling suggests home ownership is less expensive than renting due to anticipated capital appreciation and tax breaks.

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