Governments to blame for high cost of new housing

The affordability issue facing Sydney and Melbourne is largely a factor of supply and demand. Both cities are experiencing strong population growth (demand) and too little new housing being built (supply). 

This is driving up prices and making it difficult for first home buyers to get into the market. The situation is exacerbated in Sydney where the city has a very limited supply of land for new housing because of its geography.

For first home buyers in Sydney and Melbourne, the affordability issue is worsened as they need to raise a higher deposit because of the strong price growth, especially in inner-city areas where lots of young people are keen to live.

Many years ago there was a limited supply of funds for housing loans compared with today, when funds are plentiful and there are a plethora of lenders in competition, coupled with interest rates at historic lows.

Today one in four first home buyers gets help from their parents to secure a property. In some cases it is an investment apartment and rented out.

Buyers can borrow up to 95 per cent of the property value but they must demonstrate their deposit has been genuinely secured and have stable employment.

Prices are rising fast in areas close to the CBDs of Sydney and Melbourne as many young people want to be close to entertainment and their work, which is fuelling the price growth.

The biggest single factor in the problems of housing affordability is the high cost of new housing – where 50 per cent of the costs are direct and indirect government taxes.

Local, state and federal governments are to blame for many of these excessive charges, as well as not releasing enough land for new homes to satisfy the demand.

The NSW government has been proactive in releasing more land but more incentives need to be created for young buyers to enter the market, which is also becoming dominated by investors – many of whom are foreign.

We are seeing a major change in the fabric of Australian society, where young people are forgoing the dream of owning their own home or apartment, opting instead to rent and investing their surplus funds in other areas, including the sharemarket.

This is not a surprise when you consider there are more than 200 suburbs across Sydney with average home prices now above $1 million – and rising.

The government needs to do more to improve housing affordability, the tax system needs to be fixed and the myriad of rules around new housing developments should to be relaxed to alleviate the supply problem.

John Symond is the executive chairman of Aussie Home Loans.