The (Lack of) Housing Affordability Conference

The federal opposition has called on federal and state governments to cut land tax and stamp duty to help boost rental stock. Thousands of people across the country are skipping meals to pay rising rents, a housing affordability conference in Sydney heard on Thursday. And housing experts warn the home affordability crisis threatens to destabilise the economy and drive the country into recession.

Opposition frontbencher Greg Hunt said on Friday this week's national housing conference was an ideal opportunity for federal Housing Minister Tanya Plibersek to address land tax and stamp duty, to lessen the burden and help increase the stock of homes available for rent.

"These are killers for people and what they do is decrease the rental stock," Mr Hunt, opposition spokesman for Climate Change, Environment and Urban Water, told the Seven Network.
"A lot of people have said we're not willing to pay the cost of holding a rental property if we're whacked with a huge land tax or we have to deal with stamp duty and today is the day, Tanya, stamp duty, land tax and more land releases - you have a great opportunity."

Ms Plibersek said a lot of people had taken money out of investment property and put it into superannuation when favourable tax treatment was introduced last year under the previous government.

She said the Rudd government had committed to introducing the first home saver account to help people into their first house. "We know that as a proportion of all home buyers, first home buyers have shrunk as a proportion, so we want to help them save through a superannuation-style savings account," Ms Plibersek stated. "We've also got a national rental affordability scheme, 50,000 new rental properties, because there is a terrible shortage all around the country."

Experts told the housing conference on Thursday that Australia faced great social unrest and human suffering as well as chronic labour shortages without affordable housing. Professor Rachel Gatt, an affordable housing policy expert from Tufts University, Massachusetts, said the housing affordability equation was brutally simple. "Either wages have to stay high enough so people can afford to buy housing on the private market or if the private market is not able to meet the housing challenge then you need to have government subsidies," she told reporters.

"If you don't have affordable housing, and if your wages don't keep pace with the cost of housing, you are going to find people doubling up with relatives, turning into homeless people and creating a great deal of social unrest and human suffering than what you have now."

Research presented at the conference show people are going without food as they struggle to pay their rent. Professor Terry Burke of the Australian Housing and Urban Research Unit presented the research, which showed 26 per cent of low-income renters sometimes go without food and 42 per cent of low-income renters cannot afford school excursions, Fairfax reported.
Labor says the Howard government failed to acknowledge the rental crisis, despite knowing more than two years ago that more than one third of renters were suffering from rental stress.

Simon Turner simon@marquetteturner.com.au

How To Get On The Property Ladder

THE HARD FACTS

• More than a third of a family's income goes to mortgage (In NSW it is 38%)
• Affordability has dropped in every state except Tasmania
• NSW is the most expensive state, ACT has the least affordability
  

In Sydney, with almost 40% of the household income going towards housing it is little wonder that there is any money left for anything else after living expenses are met (food, utilities, schooling etc).

Additionally, credit card debt is increasing hand-in-hand with the increase in the cost of living.

The new Rudd government promises action, and Marquette Turner remain hopeful that their election promises of first home-owner saving’s schemes are just the tip of the iceberg of a myriad of plans to improve housing affordability.

In the short-term, however, here are some suggestions to help you improve your chances of buying a property.



WHAT TO DO


Rent and Invest.

If renting, don’t wipe investing from the equation. You CAN do both! While rents have also gone up over the last year, the rise has not been anywhere near as steep as increase in mortgage payments (due to increasing interest rates) and rising property prices.


Renting can save you money in the short term so use the savings, no matter how small, to:



a) pay off any credit card debt (as the interest on this is likely to be far higher than any savings account can offer)

b) invest the money in an internet savings account (around 7.25% currently). Do not leave in a standard bank account as the interest returned to you is barely worth the cost of a stamp.

c) for those with more confidence, the stock market is returning almost double such saving’s account: on average 14% this year. Money invested in the stock market can quickly be withdrawn (i.e. is liquid) and can be used for the down payment of a mortgage.

d) some of you may even be in a position to consider to investing in a cheaper city to the one you're renting in.



Budget and spend carefully.
In times like this it is especially important to keep a budget and spend wisely. The more you save now, the more can save and invest meaning that your money is working for you now so that when affordable opportunities present themselves later you will be ready.



Move back in with your parents.

If this is still an option, don’t dismiss it. Rather than pay rent to a stranger – help out the parents by providing an extra income source for them.


Move.

Yes, the major cities in Australia are expensive. So move to a smaller city that is growing. Both cities are relatively cheaper and jobs are available. While this is probably the most difficult option, it may be the best long term solution for finding that affordable dream house.

Keep looking.
Despite high prices there will always be a potential bargain out there if you are willing to compromise a bit. The big thing when buying is Location, Location, and Location. Look for old houses which with some renovation. This could be the affordable option you were looking for.

Don’t Stop Researching

Whilst housing affordability may be at its worse, one’s ability to research and make sound investment decisions is probably the best it has ever been. Use the internet to educate yourself on processes, ideas and trends. Marquette Turner's blog's can provide you with useful insights, regardless of your experience, intentions, or available funds.

Maybe things are looking up after all! Good luck.

Simon Turner

The Hit List: Latest Buyer Trends

HOME buyers are looking for fewer but bigger rooms, a bedroom with a view and the latest in technology. Not to mention a great location and water tanks!

The trend is for fewer but larger rooms, and while the formal dining room went out of fashion a long time ago, spare bedrooms and the third bathroom are the next to be crossed off the home buyer's shopping list.

A master bedroom with a view is the ultimate desire. And while it doesn't have to be on another floor, there does have to be a bit of distance between it and other bedrooms. The ensuite must have plenty of room, where owners can sit in the bath and see outside. And, despite current water restrictions, they like to have a spa.

Home theatres are still on the "must have" list but now we also want plasma or LCD screens throughout the house: in nearly every nook and cranny, including in the kitchen, bedroom, near the pool and even in the bathroom.

Technology continues to affect our homes and it is also now important to buyers that their home has a wireless connection so they can work from home, throughout the home without having to compete with the rest of the family for cable access.

When it comes to looking into the crystal ball to see what will be the most desirable asset of your home in the future, the location remains the ultimate key.

Schools in particular, shopping centres, public transport, parks and lifestyle conveniences such as, cafes, restaurants and gyms are all desirable aspects.

From most buyers' viewpoint, the really important features for the location of their home are that the neighbourhood is safe, close to schools, medical services and shops, and also close to their workplace or to reliable public transport.

The aesthetic characteristics of a suburb or street also rank high on most homebuyers' list of desirable features.

A recent survey by Archicentre asked home buyers about what feature they would place above others. Almost 80 per cent said a water tank for gardening while 14 per cent said a spa in the en-suite and 6 per cent went for the large plasma screen.

Sustainable housing practices, such as rainwater tanks, are becoming more popular across the board given that water restrictions are unlikely to disappear in the near future.

Simon Turner

Property Vs Shares: And The Winner Is...?

I was talking to a friend in the last week who has just purchased a great 1 bedroom apartment in Surry Hills. I visited him there just after he moved in and while showing me around asked the BIG question - which is a better investment for me, shares or property? The question took me back a little as he had just purchased his first home and yet still felt uncertain enough to ask the question. We then sat down and discussed what it had cost him to purchase his first home.

He had $50,000 to invest and he could have chosen property or shares. The property cycle and share trading cycles over the last 100 years or so have shown study after study that similar returns are achieved in the long run by investing in either area. Property prices typically double every 7-10 years depending on where you are in the country and share prices tend the same way over a similar period. The issue for the person with $50,000 to invest is gearing.

Gearing is what I believe makes the big difference for the average long term investor. Given that no stamp duty is payable up to $500,000 for a first home buyer, combined with the first home owner's grant there is an immediate incentive of up to $30,000 approximately. The big deal is financial institutions of all types will lend you up to 100% of the purchase price of property and most will lend at or above 90% LVR (Loan to Value Ratio). What this means is that you can take advantage of the capital growth of a property worth $500,000 with no stamp duty payable and legal and mortgage fees all paid with the first home owner's grant. At an LVR of 90% you would owe $450,000 to the lender and the property should be worth around $1 million in 7 to 10 years following on from past trends.

This sort of capital gain would simply not be possible for those investing in shares without significant security such as existing property or other assets. Few if any financial institutions would lend at such a high LVR to anyone purchasing shares and therefore I have to say that property comes out on top well and truly for the average Australian. Of course we have seen some huge success stories with people making millions from shares and it would be unwise to ignore shares as part of your total investment portfolio when you have the means to do so. Shares are cheap and easy to trade and if traded well can return enormous sums of money. The winner for the average Australian starting out their financial life in 2007 is property! Michael Marquette

Should I rent or should I buy?

The Marquette Turner team frequently are asked the question "should I rent or buy?" And this isn't just for first-home buyers, but also investors.

Whilst everyone's personal circumstances obviously vary, and with the price of real estate in capital cities these days, it is certainly an important question.

Whilst there is not a simple answer, here's a useful link that can help you decide whether you would you be better off, financially, if you rented and invested instead.

Try moving the investment return assumption up and down to see what a difference it makes. See www.yourmortgage.com.au/calculators/rent-vs-buy

Simon Turner