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Australia's housing problem to get worse with rising mortgage rates and house prices forecast

Australia's housing affordability will get worse before it gets any better, with home mortgage interest rates more likely to rise over the next year or so, the federal opposition's housing summit was told today. Financial markets are already betting the Reserve Bank of Australia will need to raise interest rates next month to kerb renewed signs of price pressures.

Any mortgage rate rise will compound already stretched household budgets after last year's three interest rate rises. More than 100 experts in finance, economy and politics have joined federal and state Labor politicians at Parliament House in Canberra to find solutions to the housing affordability crisis. ANZ Bank chief economist Saul Eslake told the conference that high interest rates were the cause of the last housing crisis in the late 1980s, which was later countered by low interest rates.

But this time the problem was also rising house prices, which would be “a problem for some time to come,'' Mr Eslake said. Lower mortgage rates would help, and authorities should aim to put downward pressure on interest rates, and “saving more from the resources boom than the present government,'' he said.

Young home buyers are the victims.

The conference was told that the main victims in the current housing crisis are under the age of 35 that typically borrowed too much during the 2000-2004 housing boom. This group is now suffering from rising interest rates, and in some cases are having to take on a second job to meet repayments. NSW Planning Minister Frank Sartor said the cost of building houses was accelerating, and needed to be countered with a quicker turnaround in housing permits. But he disagreed with the federal government's solution to the housing problem that it was just a question of releasing more land for housing and cutting state housing related taxes.

Mr Sartor said cutting taxes would just lift house prices by the amount of the tax cut. This is a similar argument the government uses for not raising the $7,000 First Time Home Owners Grant. But in any case, the conference was told that the value of the grant has been hugely diminished due to the rise in house prices. The Government is undertaking a national land audit to find suitable areas to build new housing, and continues to press states and territories to cut land taxes as part of the GST agreement.

Infrastructure is key

Australian Local Government Association president Paul Bell says it is not just a question of building new houses, but building them where people wanted to live, with proper services and infrastructure. ”Supply has to be where demand is,'' he said. Housing Industry Association managing director Ron Silberberg says states will suffer a $50 billion shortfall over the next 10 years as they try and keep up with new infrastructure needs. He said there should be a residential infrastructure fund, similar to Auslink and the government's new roads initiative, to allow for a synchronised roll-out of infrastructure with new home building.

Another problem for new home buyers is they are competing with investors who can gain tax benefits from investing in property, and are driving up house prices. But Mr Eslake said saving initiatives to help fund the deposit for a new home, such as a superannuation-type scheme, should be aimed at buying a new property rather than inflating the price of an existing home.

Housing Market crisis has Rudd suggesting a tax credit system help lower lower rents so renters can save and become home buyers

Australia's housing market crisis has would-be Prime Minister Kevin Rudd today suggesting tax credits for housing investors as a way to ease the rental shortage of affordable rental accommodation

Australia's opposition Labor Party has suggested tax credits for those willing to invest in affordable rental housing accomodation.

The Federal Opposition Leader, Kevin Rudd, has suggested offering tax credits to residential real estate property investors who are willing to develop affordable rental housing. Mr Rudd says spiralling rents are making it hard for young people to save enough for a housing deposit. He says tax credits could help address a tight rental market. "The Commonwealth Government could establish a pool of tax credits for those who are proposing to invest in affordable rental accommodation," he said. "Once they've invested in affordable rental accommodation and offer cheaper prices for those renting that accommodation, they become eligible to apply for tax credits from the Australian Taxation Office."

Source: AAP

New home sales lift across Australia

New home sales across Australia have improved from their slide during late 2006 caused in part by three interest rate rises in 2006.

New home sales figures released today by Austraila's Housing Industry Association [HIA] show that the sale of new homes and units among Australia’s largest builders and developers increased by 5.8 per cent in January to 7963 dwellings. Private detached house sales rose by 5.8 per cent and the sale of multi-units rose by 6 per cent. Australia’s peak building industry body, HIA, said that it is still early days but any turnaround was welcome news given the current housing supply squeeze, which was pushing up rents. HIA Executive Director of Housing and Economics, Mr Simon Tennent, said, however, it was unlikely that sales would rebound to the highs of last year following the three interest rate rises of 2006. “The majority of larger builders across Australia reported that the worst appears to have passed and that there has been some interest from investors, particularly in South Australia and Queensland,” Mr Tennent said. “But today’s number while encouraging are still well off where they need to be,” he said. “The complex problem of housing affordability looks set to dominate housing markets through to the end of the decade by which time stagnant house prices and wage growth will bring most housing back within reach. "Any additional measures, in particular the easing of the tax burden on new housing and an increase in the supply of affordable vacant land will obviously turn things around a lot quicker,” Mr Tennent said. HIA’s New Home Sales Survey is compiled from a sample of the largest 100 residential builders in Australia and is the most leading indicator on new housing activity.

Australian housing shortage caused by property investors cashing out won't last claims Prime Minister John Howard

The mass Australian property investors switch to superannuation, which is being blamed in part for Australia's housing shortage and rental crisis, will subside after July, Prime Minister John Howard has predicted.

Property investors are reported to be leaving the housing market to take advantage of generous contributions allowances before the superannuation payout tax is scrapped on July 1 2007.

Combined with an increase in mortgage interest rates and a sharp decrease in the benefits of taxation offset incentives caused by several years of tax cuts, the move has caused a shortage in rental properties and a substantial rise in rents. [Some research is predicting a further 40% rental increases by 2011. In other words the effect is cumulative and the housing shortage will which has taken years to get to these levels will take years to be corrected, due to many factors including the length of time it takes to get the housing stock to to the required numbers.]

Mr Howard has said if reports of the situation are true it is only due to the "transitional arrangements" that will exist until the end of the financial year.

"Part of the reason they are plonking their money into super is that there are some transitional rules that allow the investment of an extra large amount of money in superannuation before the new rules come into operation," Mr Howard has said on Macquarie radio.

"Those same transitional rules won't endure forever so therefore there will be some subsidence of that."

Mr Howard has also rejected the idea of national infrastructure bonds, saying he does not like to tell people what they should invest in.

"There is plenty of money, plenty of private money (for infrastructure) if you have the right public-private partnerships," Mr Howard has said.

"(That is) if state governments adopt the right dividend policies in relation to their water authorities instead of forcing them to pay in effect a tax by ways of a dividend and allow them to reinvest in their infrastructure."

Source: Newscorp

Queensland to get new property boom and migration as water recycling is introduced

The proposed introduction of recycled waste water into southeast Queensland's drinking supply would revive property investment and migration to the region, an independent property analyst said today.

Michael Matusik said the absence of water infrastructure had been a major stumbling block for investors. "Our studies show that it has been the lack of leadership regarding water that is keeping many residential investors from buying into southeast Queensland," Mr Matusik said. "The lack of rainfall, as well as limited infrastructure rollout, particularly in relation to water, has hampered buyer confidence and contributed to a declining migration intake into the southeast corner of the state."

Queensland Premier, Mr Beattie announced yesterday that southeast Queensland would be drinking recycled waste water as early as next year, whether they wanted to or not. He said the state Government had scrapped plans for a $10 million referendum on the issue, because record low inflows to dams had left southeast Queensland with no alternative. Mr Matusik said research had shown people were becoming more educated about water use. "Twelve months ago, the installation of a water tank would have been last on the list if people had $10,000 to spend," Mr Matusik said. "But the penny has dropped in terms of the greater awareness of the water issue."

Source: AAP