Expensive housing: why Australians are paying more


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Expensive housing: why Australians are paying more

The average price of a house in Australia is now well over half a million dollarsi. The high cost of housing raises questions about why Australians seem to be paying so much more than the rest of the world.

Australian housing was recently found to be among the world's most expensive in the International Monetary Fund's (IMF) Global Housing Watch survey. The survey discovered that out of 24 developed nations, Australia had the second-widest gap between house prices and average incomeii. With the average price of a residential dwelling now sitting at $546,500i, Australia is ranked as the third least affordable place in the world to buy a propertyiii.

First home buyers, investors and even developers are forking out more than ever for Australian property.

While this is great news for anyone looking to put their property back on the market, first home buyers, investors and even developers are forking out more than ever for Australian property. Here's a look at just some of the reasons why housing has become so expensive.

Taxes

The costs associated with buying a property, such as stamp duty, have greatly impacted the cost of housing in Australiaiv. Economists suggest that an overhaul of the Australian tax system, including abolishment of stamp duty and the introduction of a broad-based land tax, would help bring housing prices back down to affordable levelsiv,v.

Availability and affordability of land

A land shortage in densely populated areas like Sydneyvi and high-growth areas like Perthvii has also contributed to the rise in housing prices; as with any commodity, limited supply and greater demand result in higher prices. Land has also become more expensive for developers to purchase, mainly due to the imposition of government taxesiii. Many developers then pass these increased land costs onto buyers to increase their profit marginsiii.

Overvaluation

A recent research paper released by the Reserve Bank of Australia (RBA) suggests that housing in Australia suggests that housing in Australia may be overvalued (which means that the home buyer would be better off renting than buying a similar dwelling)viii. The paper suggests that at current prices, renting is probably a better financial decision for the average household than buying. This estimate is based on current house prices, rents, interest rates, capital appreciation, and other factorsix.

Increasing labour costs are a major contributing factor to the rise in housing prices.

Labour and building costs

The ABS has found that the cost of building houses in Australia has increased almost fourfold in the past two decadesx. Increasing labour costs are a major contributing factor to the rise in housing pricesxi; the most recent ABS survey into the construction industry found that the average labour cost per employee was $63,600 a yearxii, well above the national average of $53,063xiii.

If you're looking to buy your first property or add another investment to your property portfolio, it isn't all bad news. Although housing prices are on the rise, analysts are predicting that as they approach levels of unaffordability, they will more than likely fallxiv.


iAustralian Bureau of Statistics 2014, '6416.0 - Residential Property Price Indexes: Eight Capital Cities, Mar 2014', viewed 24 July 2014,
http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6416.0Mar%202014

iiYour Investment Property, 12 June 2014, 'Australia: The World's Second-Most Expensive Housing Market', viewed 24 July 2014,
http://www.yourinvestmentpropertymag.com.au/news/australia-the-worlds-secondmost-expensive-housing-market-188613.aspx

iiiJericho, G, 12 June 2014, 'Why Australia is the third most expensive place to buy a house', The Guardian, viewed 24 July 2014,
http://www.theguardian.com/business/grogonomics/2014/jun/12/why-australia-third-most-expensive-houses

ivIrvine, J, 30 September 2011, 'Land is the best hope for fixing tax system', Sydney Morning Herald, viewed 24 July 2014,
http://www.smh.com.au/federal-politics/political-opinion/land-is-the-best-hope-for-fixing-tax-system-20110929-1kz76.html

vABC News, 'Property industry backs calls for tax system overhaul', viewed 24 July 2014,
http://www.abc.net.au/news/2014-07-04/property-industry-calls-for-tax-system-overhaul/5571034

viRaptis, G, 17 March 2011, 'Sydney's housing shortage to continue', PropertyUpdate, viewed 24 July 2014,
http://propertyupdate.com.au/sydneys-housing-shortage-to-continue/

viiNorthover, R, 30 April 2014, 'Perth Facing Severe Land Shortage, Opportunity for Perth Property Developers', WA Property News, viewed 24 July 2014,
http://www.wapropertynews.com.au/perth-property-developers/-2026

viiiFox R & Tulip P, July 2014, 'Is Housing Overvalued?' Reserve Bank of Australia, viewed 30 July 2014,
http://www.rba.gov.au/publications/rdp/2014/pdf/rdp2014-06.pdf, p.1-3

ixFox R & Tulip P 2014, 'Is Housing Overvalued?' Reserve Bank of Australia, viewed 30 July 2014,
http://www.rba.gov.au/publications/rdp/2014/pdf/rdp2014-06.pdf, p.27

xABS 2009, '8752.0 - Building Activity, Australia, Dec 2008 ', viewed 24 July 2014,
http://www.abs.gov.au/ausstats/abs@.nsf/featurearticlesbytitle/2609898B87F95519CA25792D000E2DF5?OpenDocument

xiColebatch, T, 24 June 2014, 'Labour cost growth hits business hard', Sydney Morning Herald, viewed 24 July 2014,
http://www.smh.com.au/federal-politics/political-opinion/labour-cost-growth-hits-business-hard-20130623-2oqry.html

xiiABS 2013, '8772.0 - Private Sector Construction Industry, Australia, 2011-12', viewed 24 July 2014,
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/8772.0Main%20Features22011-12?opendocument&tabname=Summary&prodno=8772.0&issue=2011-12&num=&view=

xiiiABS 2012, '6348.0 - Labour Costs, Australia, 2010-11', viewed 24 July 2014,
http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/6348.0Main%20Features22010-11?opendocument&tabname=Summary&prodno=6348.0&issue=2010-11&num=&view=

xivGreber, J, 12 June 2014, 'Australian house prices ranked world’s second most expensive', Australian Financial Review Smart Investor, viewed 24 July 2014,
http://www.afrsmartinvestor.com.au/p/property/australian_house_prices_ranked_world_cFMsvMi0mTdUCGYuZ7IKsK