Sure, says Professor Rachael Ong from Curtin University, in a contribution to The Conversation, the total cost of the dwelling is relevant and supply and demand factors are fundamental. But:
“The problem with relying on rising property prices as a “price” signal of a supply shortage is that the dwelling an owner-occupier buys is both a consumption and an investment good.”
The result of which is that, as Professor Ong describes it:
“…property prices are at best a murky indicator of the balance of supply and demand for housing as a home to live in and an asset to own.”
In general, we would expect to see rents rise when housing supply falls below demand, not as an investment, but for somewhere to actually live. The chart below shows property prices have risen, especially in Sydney.
But higher prices could mean anything from better-built houses, to bigger families or transactions only of higher-value homes.
So when we consider housing affordability, we need to accept that with housing price rises, as Professor Ong says that:
“…housing economics principles tell us this can only be attributed to a supply shortage if rents have also soared.”
As the chart below shows, the weighted average rental price for a three-bedroom house has increased just 10% over the last decade, from AUD389 to AUD429 per week.
Against the Real Property Price Index increases that (shown in the first chart) have averaged something close to 30% over the same period, the cost of renting has increased less – significantly so for cities other than Sydney.
On housing affordability, Professor Ong calls it plainly:
“So claims that a housing shortage is the principal cause of a lack of affordable housing are unfounded.”
But that does not mean efforts do not need to be made to support those on lower incomes who find it difficult to ‘compete in private rental markets’.
What this points to is that genuine efforts to improve housing affordability need to be more nuanced and targeted than simply trying to find ways to make purchase prices cheaper.
