Tuesday, June 05, 2007

So, what's affordable?

If we are to believe Australia’s peak estate organisations Canberra has gone from being one of Australia’s least-affordable cities to being the most affordable in the space of a week.

Last Wednesday the Housing Industry Association told us that an acceleration in ACT house prices had plunged housing affordability here to a record low.

Yesterday the Real Estate Institute said that our housing, already the nation’s most affordable, had even more so.

The Association says that a Canberra first home buyer’s mortgage payments now take up 36 per cent of family disposable income – a record high. The institute says that Canberra homebuyers now fork out only 19.3 per cent of family income – an Australian low...

The Chief Minister Jon Stanhope could be forgiven for being shell shocked. Yesterday he said diplomatically that while it was “pleasing to see that according to the Institute housing affordability in the ACT has improved over the past quarter, the fact remains appropriate housing remains out of reach for some Canberrans”.

Neither of the indexes gives us a good handle on reality.

The Association’s is the only one that examines that examines the prices paid by first home buyers. Those prices are supplied to it by the Commonwealth Bank, one of the largest home lenders, which finances one in five Canberra houses.

But because Canberra is small, and because houses don’t change hands that often, the number of loans that make up the Association’s sample each three months is small. The Commonwealth lends money to only around 70 or 80 Canberra first homebuyers each quarter; the prices it reports bounce around.

The Association uses the median price to calculate repayments and sets them against the average household income. Mixing a median with a mean is not recommended by statisticians and is all the worse because the average household income it uses is the Australia-wide one rather than Canberra’s.

The Institute by contrast does use Canberra’s household income statistics, but in a similarly unhelpful inversion of the practice used by the Association it sets the ACT median household income and against the average ACT monthly home repayment.

The bottom line is that neither index speaks the complete truth. But it should be possible to construct an index that does by taking the best from both and combining it with information collected by the ACT Treasury on the prices paid by recipients of the First Home Owner Grant. Perhaps the ACT Treasury could do it. Perhaps a budget announcement?