Property in Australia becoming less affordable as prices rise and supply falls

Interest rate increases, lack of supply and high land prices are also adding to the problem. About 16% of property owners were struggling to pay loans in November, up from 11.7% in May, according to a survey from the Mortgage Finance Association of Australia.
 
‘Recent interest rate increases are negatively impacting households. Confidence in the housing market is not only at pre-global financial crisis, its back to where it was during the height of the housing boom,’ said Phil Naylor, chief executive officer of the MFAA.
 
The survey also found that some 73% of Australians expect property prices to rise, the highest proportion in more than three years. This compares to 23% of respondents when the last survey was carried out in May 2009.
 
Australian property prices rose 4.8% in the three months to December from the previous quarter, bringing the national median prices to A$525,524 ($469,398). Prices will rise by as much as 10% this year, according to Australian Property Monitors.
 
A lack of supply is helping keep prices high but cconstruction of new homes across Australia will struggle to keep up with demand this year, it is claimed. Lending constraints and government regulations are likely to limit development of new projects, said BIS Shrapnel economist Jason Anderson.
 
Some 159,000 new houses and apartments will be built in the year ending June 30, up from 131,346 a year earlier, forecasts from the Sydney based research and forecasting company show. But this 21% increase will lag behind demand for new properties, which will exceed 200,000 this year, Anderson said.
 
‘At the moment there’s a relatively long lag between demand and rate of construction. We don’t think the numbers will decline from here, but the really big rise we need hasn’t come through,’ he explained.
 
House and apartment construction remained sluggish between February 2008 and July 2009, and property starts saw declines into late last year, as banks curtailed lending and the global financial crisis kept development in check. Construction of new homes rose 9.4% in the third quarter from the previous three months, according to the Australian Bureau of Statistics, the first increase in a year.
 
Sales of newly built properties doubled in the December quarter from a year earlier, outpacing the 40% increase in existing-home transactions, Anderson said. The jump was driven by the first home buyers’ grant, which favored purchases of new properties, he said.
Higher prices for existing properties relative to land and building costs in some parts of the country also drove demand for new houses, Anderson added.
 
Australia has six of the world’s 10 most unaffordable housing markets among six countries, according to the annual Demographia International Housing Affordability Survey. The report, which compared 272 markets in the US, UK, Canada, Ireland, New Zealand and Australia in the third quarter of 2009, blamed land use regulation which it said ‘has virtually eliminated affordable land for building’ in Australia.