Worried that $607,000 is too much to pay for a Sydney house? The Reserve Bank isn't worried and it expects prices to climb higher still.
In a speech that amounted to a defence of Australia's historically high house prices Reserve Bank Deputy Governor Ric Battellino told a housing conference yesterday to expect worse and to recognise that home buyers were getting value for money.
Prices would climb further because the global economy was growing again and because Australia had entered "a new upswing" that would further extend its record 18 years of continuous economic expansion...
House prices would be boosted by increased population growth and immigration, solid increases in household incomes and "substantial competition" for construction industry workers from the mining sector.
Australians had been spending more of their income on housing than ever before but had been getting bigger and better houses as a result.
Almost half of the $250 billion shelled out on housing each year was spent on alterations and additions.
Around one in every seven new houses constructed were "simply replacing existing houses that have been demolished," up from one in every ten new houses a decade ago.
And we're buying holiday houses like never before.
"Census data shows at 2006 there were 8 per cent more dwellings in Australia than there were households. Presumably, most of this surplus reflects holiday houses and second houses."
"In short, a high proportion of dwelling investment is going into improving the quality of existing dwellings and building accommodation additional to primary residences. If as a nation we want to continue to do this, while at the same time providing enough dwellings for the growing population, the overall amount of dwelling investment undertaken will need to increase relative to GDP," Mr Battellino said.
While there was "a common perception that house prices relative to household income in Australia are high" Australia's population was "more concentrated in a few large cities" than were other populations and Australians had more free income with which to pay for housing.
"Australians seem to spend less of their income on non-housing consumption than is the case for US households, with a significant part of this difference explained by lower health costs in Australia," the Deputy Governor said. "Australian households as a whole appear to have the financial capacity to sustain a relatively high ratio of housing prices to income."
"It is certainly the case that the ratio is higher now than it was 20 years ago. However, this is largely explained by the fact that lower interest rates have allowed households to take out bigger home loans without increasing housing loan repayments. In turn this has given households more buying capacity in the
housing market, which has been reflected in house prices.
Mr Battellino conceded that not all Australians were getting better housing for their money, noting that first home owners - typically those under 35 years of age - have experienced a "noticeable decline" in home ownership.
"It may be that this is being driven by demographic factors - such as the fact that young people are staying in education longer and delaying the formation of new households - but it may also be financially driven," he said.
The latest RP Data research puts the typical price of a Sydney House at $607,000 after climbing $39,000 over the past year and the typical price of a Sydney unit at $457,000 after climbing $35,000.
Published in today's SMH and Age
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