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1. Main features of the Housing Market

1.1 Factors that are taken into account

To examine the housing affordability issue in Australia, there are 6 major factors that are

essential for consideration. These factors include dwelling prices or rents, interest rates (the costof loans), household income, the supply and demand of housing as well as demographic

location. The flow chart below reveals the relationship of each factors and how they assist us in

concluding whether houses are affordable for Australians.

Sources:

Affordability

Dwelling prices/rents

Interest Rates

Household Income

Supply of Housing

Demand for Housing

Demographic Factors


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1.2 Housing Price Index

1.2.1 Housing Price Index in Australia

HP I definition

HPI is short for the Established Housing Price Index which covers transactions in detached

residential dwellings on their own block of land regardless of age (i.e. including new houses sold

as a house/land package as well as second-hand houses). Price changes therefore relate to

changes in the total price of dwelling and land. (Reference ABS)

The Figure 1 shows the trend of housing price of weighted average of 8 capital cities in Australia

during 1986-2005. The base year is 1990=100.During late 1980s the HPI was growing from

about 60 to all the way 100 in 1990.Since 1990s, there was an slow increase in HPI for a decade

with about 150 in the end of the 20th century. From the beginning of the 21st century, the HPI rose

by about 100 points to 250 in 2004 and remained stable in 2005. In other words, the HPI went up

by 66.7% since 2000 . Therefore, the dramatic rise in HPI reveals that it is increasingly difficult for

people to afford houses in recent years.

1.2.2 Housing Price Index in Eight Capital Cities

T he Figure 2 shows the percentage changes in HPIs of eight capital cities during three decades.

It is clear that in 1990s the growth rate of HPI was generally below 5% except the Darwin with

highest increase of 7.4%. That is to say, the housing prices in the 1990s were growing stably.

Therefore, it was much easier for people to afford. Compared to the 1990s, the growth rates of

1980s were much greater than those of 1990s except that of Darwin with a minimal rise of 0.4%.

On the other hand, the 21st century saw an overall more than 10% growth in HPI of each capital

cities with Darwins HPI remaining stable. Notably, since 2000 Adelaides HPI rocketed by

around 16.8% which was 10 times of that in 1990s. The growth of Brisbane, Perth, Hobart and

Canberra ware around 5 times of those in 1990s. Similarly, the growth of Sydney and Melbourne

were 3 times more than that of 1990s. That means that the boom in HPI during 2000-2005 is

causing people to have trouble affording the houses.


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1.3 Ho usehold income trends from 19 94- 200 8W eekly M ean Income $

The Figure 3 demonstrates the Australian household weekly income during 1994-

2008. As we can see, the weekly family income climbed slowly from $600 in 1994

and kept increasing, peaking at $800 in 2000. After 2000, the household income saw

a slump to $500 in 2001 and then picked up and grew to above $800 in 2008.

As shown in Figure 1, the HPI still rose despite the sharp decline in household

income during 2000-2001. That means that the housing prices were too high for

people to accept.

1.4 Tenure and L andlord T ype1.4.1 Owner Without/With a Mortgage in Australia

The Figure 4 shows the percentages of owner with and without a mortgage inAustralia during 1996-2008. In 1996, there were 22.5% of people buying houses withmortgages compared to a larger proportion of owner without a mortgage. The

percentage of owner with a mortgage went up markedly until 2000 where theproportion of the house purchasers with a mortgage equaled that of house owners.


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This could be due to the sharp drop in household income in 2000. Since then, thepercentages of owner and purchaser with a mortgage grew fast with a peak of 38%without a mortgage and 33.2% with a mortgage in 2001. Since 2001, the amount ofpeople who could afford the houses decreased whereas that of buyers with amortgage increased. Notably, during 2002-2003, the percentages of the two types

intersected at 34.6% in 2002. From 2005 on, the proportion of owner with amortgage was becoming smaller than that of owner with a mortgage .Worse still, thegap between them has been enlarged , which formed in sharp contrast with thesteady rising household income in recent years.

1.4.2 Owner Without/With a Mortgage in Sydney and CanberraAccording to Table 7, Sydneys and Canberras household income are overall

highest among other capital cities. Lets examine whether more owner without a

mortgage than that with a mortgage in these two cities.

Figure 6 describes that in Sydneys housing market, the number of house ownerswere much larger than that of house purchasers with a mortgage until 2006 wherethe increasing amount of people could not afford the houses without assistance ofbanks.

The figure 7 indicates that there was a general upward trend in the proportion ofhouse owners with ups and downs and a peak at 33.7%, whereas the amount ofpurchasers with a mortgage was larger than that of the former and continued to riseremarkably until 2000 when the proportion of owner with a mortgage remained stablearound 40%

1.4.3 Landlord Type

Figure 9 illustrates the proportion changes of the two major landlord types inAustralia during 1996-2008. The state/territory housing authority accounted around5% of the total renters. However, the amount of private landlord increased smoothly.


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That is to say, there were an increasing number of tenants, which reflected thatmuch smaller amount of people could afford houses.

Tenure and L andlord T ype (1996 -1997) in 8 Capital Cities and Australia as a WholeTenure and

Landlord

type

Sydne

y

Melbourn

e

Brisban

e

Adelaid

e

Pert

h

Hoba

rt

Darwi

n

Canberr

a

Aust

.

Owner

without a

mortgage

(%)

28.0 31.7 27.5 31.9 27.5 30.3 11.8 23.3 29.1

Owner with

a mortgage

(%)

19.1 22.6 23.5 23.1 28.4 27.7 25.0 29.6 22.5

Renter

State/t

erritory

housing

authority

(%)

4.9 2.5 3.5 8.1 3.2 7.6 15.0 9.1 4.4

Private

Landlord

(%)

22.8 19.7 22.1 16.7 18.2 18.1 22.8 21.7 20.7

Tenure and L andlord T ype (1997 -1998 ) in 8 Capital Cities and Australia as a WholeTenure and

Landlord

type

Sydne

y

Melbourn

e

Brisban

e

Adelaid

e

Pert

h

Hoba

rt

Darwi

n

Canberr

a

Aust

.

Owner

without a

mortgage

(%)

29.1 29.6 24.6 27.9 29.4 32.8 10.9 23.7 28.3

Owner with

a mortgage

(%)

19.6 27.0 27.2 27.3 26.7 26.4 20.2 28.4 24.5

Renter

State/te

rritory

housing

authority

(%)

4.4 3.3 4.6 8.5 4.1 5.6 15.6 10.6 4.8

Private 20.6 18.4 24.6 14.8 18.3 16.2 22.6 19.3 19.6


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Landlord

(%)

Tenure and landlord type (1999 -2000) in 8 Capital Cities and Australia as a WholeTenure and

landlordtype

Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Darwin

Canberra

Aust.

Owner

without a

mortgage

(%)

28.4 30.4 22.5 28.0 23.3 30.7 *14.5 21.3 27.3

Owner with

a mortgage

(%)

22.6 25.3 27.0 27.5 32.9 26.9 31.3 35.2 27.3

Renter

State/t

erritory

housing

authority

(%)

4.4 2.5 3.8 7.9 3.8 *6.3 *7.7 8.8 4.2

Private

Landlord

(%)

22.3 18.2 24.6 18.5 21.2 19.3 22.8 18.8 20.8


landlord

type

Sydne

y

Melbourn

e

Brisban

e

Adelaid

e

Pert

h

Hoba

rt

Darwi

n

Canberr

a

Aust

.

Owner

without a

mortgage

(%)

40.1 39.9 32.7 38.3 34.9 45.0 21.1 33.7 38.0

Owner with

a mortgage

(%)

30.4 34.9 30.2 36.0 37.7 23.7 30.5 41.6 33.2

Renter

State/t

erritory

housing

authority

(%)

5.0 4.0 5.7 6.1 3.4 12.8 15.4 7.0 5.0


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Private

Landlord

(%)

22.6 18.8 28.0 15.2 21.4 15.3 28.0 16.0 21.2


landlord

type

Sydne

y

Melbourn

e

Brisban

e

Adelaid

e

Pert

h

Hoba

rt

Darwi

n

Canberr

a

Aust

.

Owner

without a

mortgage

(%) 34.8 38.0 30.3 34.5 33.6 38.9 16.0 28.2 34.6

Owner with

a mortgage

(%) 31.5 35.9 34.8 36.1 39.5 33.3 39.8 40.8 34.9

Renter

State/te

rritory

housing

authority

(%) 4.9 2.8 3.9 8.2 4.4 *8.0 *9.6 9.2 4.6

Private

Landlord

(%) 25.8 21.1 26.9 17.0 20.4 16.5 28.2 20.4 22.9


landlord

type

Sydne

y

Melbourn

e

Brisban

e

Adelaid

e

Pert

h

Hobar

t

Darwi

n

Canberr

a

Aust

.

Owner

without a

mortgage

(%) 30.5 34.8 33.1 33.7 28.9 36.1 17.7 27.3 32.1

Owner with

a mortgage

(%) 35.9 35.6 34.9 34.6 41.9 35.8 39.6 42.5 36.5

Renter

State/t

erritory

housing

authority

5.4 3.4 4.3 8.8 3.9 6.4 10.7 8.0 4.9


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(%)

Private

Landlord

(%) 25.0 23.1 24.0 20.2 20.8 17.0 21.8 19.4 23.1


landlord

type

Sydne

y

Melbourn

e

Brisban

e

Adelaid

e

Pert

h

Hoba

rt

Darwi

n

Canberr

a

Aust

.

Owner

without a

mortgage

(%) 28.04 34.78 31.20 32.54

31.4

5 39.44 17.78 30.53

31.3

8

Owner witha mortgage

(%) 36.51 33.89 36.91 38.2

36.2

5 32.51 36.49 40.29

35.9

9

Renter

State/t

erritory

housing

authority

(%) 5.45 2.93 3.78 8.29 4.57 9.51 10.62 8.55 5.57

Private

Landlord

(%) 27.74 25.71 25.43 19.11

24.6

1 15.85 29.79 17.25

25.2

0

1.5 Supply and Demand for Housing

To roughly estimate the relation between demand and supply, the method of comparing the

population growth and Approved Dwelling Units growth is utilized. Figure 2 displays the trend of

population of eight capital cities and Australia as a whole between the 2001 Census and 2006

Census. It is clear that 6 out of 8 capital cities saw a slight increase in population while Perths

population declined significantly by 17.47% and Darwin experienced a minor decrease. However,

Australia experienced an overall growth in population. Figure 3 illustrates the total number of

dwelling units approved in the eight capital cities and Australia as a whole from 2001 Census to

2006 Census. To enable accommodation forthe increase in population, it is expected that the

number of dwelling units would increase. This was not the case. It is should be noted that

Sydney experienced a growth of 3.05% regarding population but the amount of residential placesapproved decreased sharply by 39.87%. Thus it can be concluded that housing supply did not


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match the increase in demand, this enabled housing prices to be driven higher and higher.

(Therefore, the demand for housing in Sydney was hardly met by supply, thus driving the

housing price higher and higher.) In other capital cities (excluding Melbourne)tension like this

was not experienced.

My suggestion is that the population in Sydney and Melbourne could be encouraged to migrate

to other capital cities like Brisbane where supply of housing is sufficient.

Appendix


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Table 1 Housing Price Index in Australia(1986-2005)

Years Price Index of Established Homes

--Weighted Average of 8 Capital

Cities

% change in HPI

1986 61.789

1987 64.75 4.7921

1988 79.35 22.5483

1989 98.9 24.6377

1990 100.475 1.5925

1991 103.05 2.5628

1992 104.725 1.6254

1993 107.425 2.5782

1994 111.3 3.6072

1995 112.65 1.2129

1996 113.525 0.7767

1997 118.05 3.9859

1998 126.75 7.3698

1999 135.925 7.2387

2000 147.225 8.3134

2001 163.75 11.2243

2002 193.225 18

2003 228.325 18.1654

2004 251.35 10.0843

2005 252.05 0.2785


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Table 2 Average HPI Growth Rate of Eight Capital Cities

Sydney Melbourne Brisban

e

Adelaide Pert

h

Hobart Darwin Canberra

1980s(%) 23.8 15.8 14.3 5.1 19.9 6.48 0.4 8

1990s(%) 4.2 3.8 3.2 1.6 2.5 2.3 7.4 2.9

Since

2000(%) 14.2 12.4 19.9 16.8 12.1 10.3 7.4 15.9

Table 3 Housing Price Index of Capital Cities from 1986-2005

Years Sydne

y

Melbourne Brisbane Adelaide Perth Hobar

t

Darwin Canberra

1986 53.9 64.4 63.8 82.7 57.8 80.6 98.8 78.1

1987 58.1 67.6 65.4 83.5 61.0 83.1 97.0 76.9

1988 79.3 78.5 76.3 88.2 74.7 88.6 95.9 87.7

1989 100.9 99.1 94.4 95.9 98.3 97.2 100.0 97.8

1990 99.9 98.4 107.0 102.5 98.2 102.5 104.8 102.9

1991 102.9 95.8 121.6 106.7 93.6 110.0 111.7 115.9

1992 104.7 92.4 132.4 107.4 96.1 113.6 123.1 129.9

1993 106.9 94.1 136.3 110.6 100.8 119.4 145.0 134.8

1994 111.9 96.6 139.5 111.1 107.8 126.4 167.8 132.9

1995 114.8 97.7 138.0 110.1 108.9 129.5 183.6 128.9

1996 116.9 99.2 136.7 107.5 107.8 129.9 191.7 127.1

1997 122.1 106.6 137.9 109.7 111.6 125.7 200.6 125.7

1998 133.8 120.4 140.3 113.5 115.4 125.0 194.4 127.01999 144.7 135.6 141.2 118.1 122.3 125.1 196.6 131.0

2000 159.4 149.6 145.4 126.3 129.9 132.7 198.7 143.0

2001 174.9 178.1 155.0 139.2 138.6 135.5 200.6 159.7

2002 212.1 204.6 190.0 164.8 153.8 146.7 210.3 188.2

2003 250.8 229.0 243.3 202.9 180.7 172.3 228.2 231.7

2004 269.7 237.2 298.1 233.9 204.9 195.0 263.4 257.3

2005 261.9 234.5 303.1 247.2 221.2 197.1 280.8 260.9


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Table 5 Number of Dwelling Units Approved, By Capital City Statistical

Division(1996-2005)

Sydney Melbou

rne

Brisba

ne

Adelaid

e

Perth Hobart Darwin Canber

ra

Total

1997

15,291 17,654 10,597 4,021 9,743 529 698 1,157

59,690

1998

15,395 20,950 9,713 4,303 11,522 519 848 1,200

64,450

1999

16,874 24,286 9,732 5,151 13,914 571 601 1,373

72,502

2000

12,326 20,571 8,687 4,417 9,874 523 298 1,285

57,981

2001

12,018 22,623 10,468 5,045 11,112 616 389 1,077

63,348

Total

(2001

Censu

s) 71,904

106,08

4 49,197 22,937 56,165 2,758 2,834 6,092

317,97

1

2002

11,919 24,394 12,869 5,856 12,750 946 377 1,641

70,752

2003

10,360 22,752 13,565 5,662 14,151 1,042 306 1,652

69,490

2004

8,187 20,599 11,091 5,491 13,309 1,054 371 1,009

61,111

2005 6,809 19,746 9,416 4,970 14,414 941 452 1,062 57,810


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2006

5,959 18,264 9,682 4,961 14,203 1,038 529 1,197 55,833

Total

(2006

Censu

s) 43,234105,75

5 56,623 26,940 68,827 5,021 2,035 6,561

314,99

6

Table 6 Percentage Change in Household Average Weekly

Income(1995-2008)

Years Percentage Change in Household Average Weekly

Income

1995-

1996-0.00164

1996-

19970.073892

1997-

19980.079511

1999-

20000.101983

2000-

2001-0.35861

2002-

20030.088176

2003-

20040.064457

2005-

20060.138408

2007-

20080.320669


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Table 7 Household Average Weekly Income in 8 Capital Cities and Australia as a Whole

Years

Sydney Melbourne

Brisban

e Adelaide

Pert

h Hobart Darwin Canberra Aust.

1994-

1995 643 604 592 536 604 548 695 610

1995-

1996 634 594 574 580 628 556 771 609

1996-

1997

685 637 617 574 668 619 769 825 654

1997-

1998 749 690 737 585 671 565 804 813 706

1999-

2000

818 772 753 681 755 642 922 949 778

2000-

2001

528 498 456 442 487 421 630 581 499

2002-

2003 574 541 513 494 516 450 575 642 543

2003-

2004 618 570 532 543 545 536 643 669 578

2005-

2006 712 658 673 617 663 597 730 712 658

2007-

2008 914 833 910 746 877 686 883 1011 869

Table 4 Australian Population of Eight Capital Cities(Census Data)

Sydney Melbour

ne

Brisban

e

Adelaid

e

Perth Hobar

t

Darwi

n

Canbe

rra

Total

Populati

on

(2001)

3,997,3

21

3,366,5

42

1,627,5

35

1,072,5

85

1,339,9

93

191,1

69

109,4

17

311,51

8

12,016,

080

Populati

on

(2006)

4,119,1

91

3,592,5

91

1,763,1

31

1,105,8

41

1,105,8

41

200,5

25

105,9

91

323,05

6

12,316,

167


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Table 5 Number of Dwelling Units Approved, By Capital City Statistical

Division(1996-2005)

Sydney Melbou

rne

Brisba

ne

Adelaid

e

Perth Hobart Darwin Canber

ra

Total

1997

15,291 17,654 10,597 4,021 9,743 529 698 1,157

59,690

1998

15,395 20,950 9,713 4,303 11,522 519 848 1,200

64,450

1999

16,874 24,286 9,732 5,151 13,914 571 601 1,373

72,502

Table Percentage Change of Population and Approved Dwelling Units

Sydne

y

Melbourn

e

Brisban

e

Adelaid

e

Pert

h

Hobar

t

Darwi

n

Canberr

a

Total

Population Growth

Rate (%)

3.05 6.71 8.33 3.10 -17.4

7

4.89 -3.13 3.70 2.50

Growth

Rate(%)o

f

Approved

Dwelling

Units

-39.87 -0.031 15.09 17.45 22.5

4

82.05 -28.19 7.70 -

0.09

4

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