The housing market

Is housing really unaffordable? Sure it’s increasingly expensive in the inner/fashionable suburbs (I should know, I’m paying for it), but that’s all about choice. More and more people are choosing particular suburbs, driving the prices up. From yesterday’s Age:

“While the family, now based in St Kilda East, could afford to buy a home further from the city, Mrs Porter said the long commute, the cost of another car and the social isolation were too high a price.”

But go to the outer burbs, and there’s no shortage of housing. My mate Peter recently noted (not online) that there are plenty of houses for $150-200K, with most of those being in the suburbs more than 30km from the CBD, and beyond walking-distance to suburban shopping centres and decent public transport. They sit on the market for months at a time, with auctions often attracting no serious bidders.

A quick search of the Real Estate web sites shows he’s right. If you’re prepared to put up with a lengthy commute to the CBD, paying for one car per adult, probably isolation from your friends and family (unless they’re willing to move down your way too), and being without the cafe lifestyle, it seems there’s no shortage of housing that’s affordable to people (especially couples) on average incomes.

So with the politicians claiming to want to fix things, what can they really do? Won’t more or increased grants simply increase the prices in the desirable suburbs?

How about instead triggering gentrification in some of the cheaper suburbs, so the demand is spread around? You can’t move places to be closer to the CBD, but you can level the playing field a bit. Fund urban renewal projects. Instigate planning that ensures pedestrian-friendly neighbourhoods, with better facilities such as shopping, schools and other services, and recreation within walking distance of more homes. Provide usable (eg frequent and fast) public transport into every area.

Doesn’t every suburb deserve this kind of basic amenity? Why are some missing out? Why should those who can’t afford the well-heeled areas live like second class citizens?

By Daniel Bowen

Transport blogger / campaigner and spokesperson for the Public Transport Users Association / professional geek.
Bunurong land, Melbourne, Australia.
Opinions on this blog are all mine.

11 replies on “The housing market”

You are dead right, Daniel. Lack of services and commutes are the killer for the cheap properties.

We ended up choosing the compromise position – a mid-suburb with accessible (although not extremely rapid) public transport to Gary’s work and mine, and with schools, kindergartens, local shops, doctor’s clinic, several good parks, walking trails, and library in walking distance (although no cafes, we’re not *that* trendy). A side benefit is that the beach is a bike ride or short car trip away. And we paid accordingly – not stratospherically, but not $200k either – a mid-price for a mid-situated house (which is, nonetheless, large enough and with enough amenities to allow us to live very comfortably). We were lucky that, thanks to a profitable sale of our “starter house” (which, incidentally, we bought for $190k!) we had the luxury to do that.

If we had only been able to afford a $150-$200k purchase price at the time we bought this house, we probably would have rented instead, as the rotten commutes and lack of services for most properties in that bracket would have put us off, as we are a one-car family with two small children, with no intention on *ever* purchasing a second car.

We live 50 km (by road or train – 40 km ‘direct line’ in the real estate ads) from the CBD and I work in Vermont South, 25 km from the CBD. My daily trip to work is shorter than that of a friend who lives 15 km closer to Melbourne but works in the CBD.

In my previous job (in Glen Iris) this would have been impossible for me because the lack of Clearways on Burke Rd ensured a half hour journey (by tram) from Camberwell Station to Toorak Rd. But working in a middle suburb has improved my work day appreciably.

Decentralisation, as mentioned by an opinion writer in the paper today, is the answer. The obsession with Melbourne’s CBD is not workable, especially with a government that refuses to improve public transport for outer suburbs. Get more people working in more areas instead of in the city, build a ring train line and triple the number of buses on the road, and ‘outer suburbs’ will no longer be the ends of the earth.

A friend that I communicate with online is in the far eastern suburbs. It takes him an hour to get into the CBD, and an hour out. One benefit, as he says: he always gets a seat at least. But, otherwise he loves living out there. Nice area, what they need is close by, and the price was right. But yes, I get what you are saying. If public transport was better supported with more trains, more frequency, and less centralization of people, it would be better off, all around.

Philip: That opinion piece by John Roskam of the IPA misses my very point: it alleges that there is a shortage of housing, in particular full size 1/4 acre blocks. I say there is no shortage, that you can still buy them cheaply as long as you don’t mind living in the outer burbs.

For another view check this article: The politics of affordability.

I also don’t think decentralisation is the answer, as it almost by definition increases car dependency, which is a growing concern on financial and environmental grounds. Though on a limited basis (eg suburban centres at such places at Ringwood, Dandenong, Box Hill etc) could work well.

Largely correct, though it’s still possible to buy well.

Because of the disconnect between district centre planning and transport, generally you have to choose between walking distance to the area’s big shopping centre and walking distance to the train. Melton is the classic example but there are many others (Laverton/Altona Meadows, Newport-Altona/Altona Gate, Carrum/Patterson Lakes, Craigieburn/proposed Craigieburn centre etc).

It is this factor that makes the middle suburban belt (your Heidelbergs, Mentones, Glen Waverleys, Bentleighs, Claytons, and even Sunshines) so convenient and sought after because you get both.

Moving further out, even somewhere like central Werribee (though it’s biggest shopping centre is remote from rail) has some claim since it’s main street has a good range of shops and supermarkets, a library, cultural centre, swimming pool, hospital, council, uni facility and even the makings of a riverside restaurant precinct.

But Werribee is an old country town with a similar heritage and main street to Melbourne middle suburbs (except it’s more self-sufficient).

There have been precious few recent examples of such good co-locations. Watergardens at least has the co-location idea right, as will Roxburgh Park in a few months. I can think of very few other examples.

For cheap houses near suburban rail, then Craigieburn and, more speculatively, Coolaroo, are worth investigating. But you won’t necessarily get the good co-location of all the other local facilities apart from rail.

Part of the strengths of previous Melbourne planning is its co-location and strength of middle-sized centres and their proximity to rail. It’s only when you go to Adelaide, Perth, or many of our outer suburbs (all of which turned their backs on the railways and developed their big suburban centres on cheap land 2-5km away), that you realise how less liveable our cities would be without them.

And if we don’t develop fully-functioning transport-served centres in new areas, then our existing ones will have increasing scarcity value and will therefore be less affordable.

This is something that does concern me, since I’ll be looking to buy a house in about 12 to 18 months time. The areas that are affordable aren’t really where I want to live. I don’t know where I’ll be working at that time but it’s a fair bet it will be in the CBD, and I don’t really want to be living in the outer suburbs and have to commute.

I can hope that I’ll find a property I like, where I like, and that I can afford, but that doesn’t really seem likely. I suspect my options will be renting a tiny apartment in an inner/middle suburb, or owning a house in an outer suburb, with all the transport and social issues that entails. Neither are attractive options to me.

Nick, the other option is to invade Braybrook or Sunshine by being part of a ‘new wave’ of gentrifiers.

But then there may be a pang of guilt at pushing out the impecunious, as current residents of Richmond, Collingwood, Fitzroy, Yarraville, etc did 10-20 years ago.

I live in the north-west currently. As the area is now you couldn’t pay me enough to live there. Of course, if it improves that could certainly be an option.

Perhaps then the answer is to buy a cheap property in a poor-but-expected-to-gentrify area, as an investment property, but if it gets nice enough, something to move into as well? Of course, renting AND servicing a mortgage (even a small one) isn’t an option for many people.

‘Perhaps then the answer is to buy a cheap property in a poor-but-expected-to-gentrify area, as an investment property, but if it gets nice enough, something to move into as well?’

This could work. Especially if you buy a cheapie that needs some minor renovating, wait until the lease finishes, then claim the $10k FHOG. Put this $10k towards the sort of renovations that are likely to increase its value.

With the newly-renovated house (done at taxpayers’ expense) either (i) live there happily ever after, (ii) if you can’t afford to live there, stay for the minimum 6 months, let it out and move back to a rental house, (iii) stay 6 months and sell for a tax-free capital gain and good deposit on something better or (iv) if your job income has improved, keep it and access its equity for another property.

‘Of course, renting AND servicing a mortgage (even a small one) isn’t an option for many people.’

This has a (small) grain of truth, but the fact is that rental houses are cheaper than cars to buy and run.

Belief in the above myth is responsible for keeping more Australians poor than almost anything else that could be said.

The main division of wealth in Australia is whether people own housing (no need to live in it) or not.

We’re talking wealth disparaties of 10 or 20 times in some cases. Ownership of housing outstrips the two other predictors – employment status (non-retired non-working people are mostly poor) and age (wealth rises exponentially with it with people who just qualify for seniors cards being about the richest). Other factors thought to influence wealth (eg income and education) have some bearing but less so than many people think.

Getting back to the original point, if people think that renting + buying a rental is unaffordable then there’s no way that they will be able to buy (and pay for) their own home unassisted without a tenant or ATO to help them out.

Consider this:

Option 1: Buy own home for $200k. Mortgage, rates, maintenance and other costs will come to about $20k pa which is borne by you alone. Bank will not give you a loan if your job income is too low.

Option 2: Buy rental house for $200k. Get $200pw rent ($10k pa). Mortgage, rates, management, costs come to $10k pa. But since interest and other costs are deductible, you might get about $4k back from ATO. So the tenant & ATO contributes about $14k out of $20k to maintain the house and its loan, leaving you to find $6k pa. This is cheaper than many would spend running a car. Provided the house appreciates by at least 3% pa (approx CPI) then you will be ahead with equity growing exponentially as the real value of the loan falls.

What about digs for yourself, which the above doesn’t help with? Just find another similar house renting for $200pw and live in that. There’s no maintenance costs or rates so the total cost is $16k pa as against $20k pa for your own home. The tenant income will help the bank say yes while there’s $4k extra to pocket. If you move into cheaper accomodation or can otherwise find another $2-4k pa then add that to the saved $4k to buy another house to rent!

In summary buying your own home is good but expensive and even unaffordable for some. But counter-intuitively, buying homes for others to live in can work out cheaper than buying a single home for yourself, as the tenant and the ATO assist and you can compromise on things like location (you don’t have to live there).

Those who do not realise how cheap the latter can be risk never getting a toehold in the property market (reasonable and affordable is better than good and unaffordable) and remaining in the portion of the population on the wrong side of what is the most important wealth divide in Australia today.

Hmm. Very interesting stuff there Daniel & Peter. I think it definitely bears more thought. Thanks.

Comments are closed.