housing affordability – PropertyESP

Perth’s housing supply falls short

The question on everyone’s lips of late has been “Are we being oversupplied with apartments?” but recent research from the Australian Housing and Urban Research Institute (AHURI) and the Bankwest Curtin Economics Centre (BCEC), has shown that in fact increases in housing stock in Perth have failed to match population growth.

The study – Housing supply responsiveness in Australia: distribution, drivers and institutional settings, led by Professor Rachel Ong, Deputy Director of BCEC, examines how well supply is keeping up with demand across Australia’s regions and capital cities.

And while the rest of Australia has been able to match demand – Perth has lagged behind.

The report also found that most of Perth’s housing was concentrated in the mid to high price segments.

While typically construction of housing at the top end of the price scale tends to then allow for an increase in availability of affordable housing – this has not been evident in Perth.

It therefore appears that Perth is in fact in dire need of more apartments – but in the right locations.

The recent WA Apartment Advocacy research showed that renters were seeking locations that were close to their work as well as conveniences such as public transport, shops, gyms and restaurants. And while the Metronet will free up many opportunities for affordable housing along the train line – this also needs to be matched with services and facilities.

The fact is, we need more housing and we need affordable options and that is going to require creative thinking outside of the box. But either way – urgent action is needed!

Read more about this article and PropertyESP’s Samantha Reece’s comments in this weekend’s edition of the West Australian.

Is it really infill vs greenfields?

Samantha Reece recently MC’d the Future Directions event for the Property Council on the infill vs greenfields debate.

The event came hot on the heels of the Property Council’s Perth Design report which stated that infill only cost the State Government $50,000 while greenfields costs were closer to $150,000.

On the panel were a mix of greenfields and apartment developers as well as LGA representatives and as such the discussion became quite lively.

Certainly the greenfields developers rebuked Property Council’s statements re the cost of outer ring development and reinforced that often they are the ones that in fact incur the costs of infrastructure. They also felt that WA led the rest of the nation in terms of the calibre of communities and liveability.

On the other side of the fence, Mayor Brad Pettitt of Fremantle Council spoke of the need to accelerate infill in their CBD in order to sustain the businesses and restaurants, which suffered outside of the non-peak weekend periods.

Certainly Fremantle Council appears to have fully embraced infill (unlike other LGA’s) and their focus on delivering excellence rather than ordinary should be truly encouraged!

But Brad also acknowledged that homes in greenfields could also reflect sustainability principles and Josh Byrne’s home, which is 10 star rated and built for the same cost as an average home, is living proof of this principal.

Interestingly Brad raised the point that maybe we should rate homes with the same star rating as dish washers and fridges, and that this may be the starting point for raising awareness of the true costs of operating an unsustainable home.

However what became quite clear from the panel, was that choice was important.

While Psaros have made it their trademark to focus on sustainable apartments, the likes of Stockland and Cedar Woods are dealing with a variety of buyers and budget certainly is an influencing factor.

Hence both companies seek to have a variety of builders for their projects and while some residents may rate sustainability highly – others may not – and that is their prerogative.

There certainly was a feeling that State Government needs to play a stronger leadership role in championing infill and sustainability and once again Brad felt that if some Councils continued to advocate “the no change” status, that in fact they should be penalised by reduced allocation of State and Federal funding.

Overall there is a growing consciousness of the need to demonstrate best practice and while WA may be still behind the eight ball, times are a changing. Watch this space!

Many thanks to the panel Dr Brad Pettitt (Mayor Fremantle Council), Col Dutton (Stockland), Chiara Pacifici (Psaros) and John Silla (Cedar Woods).

Micro is the new black

At a recent conference, PropertyESP heard from a young graduate who pleaded the need for diversity in housing within WA.

He spoke about starting out on a graduate salary, wanting to leave home but not wanting to pay $300 rent per week (because he was very rarely at home!) nor wanting to share a group home.

He introduced the concept of micro apartments, which start from just 30sqm and which are a part of most cities’ landscapes – except Perth.

For so long, councils have been opposed to smaller apartments as they are viewed as encouraging low socio economic groups into the community – but the reality is – these are also some of the most innovative housing concepts on a world-wide scale.

The idea behind micro-apartments is that they accommodate all the facilities of a normal apartment, such as shower, living room and bedroom, but their versatility and flexibility is where you really maximise space.

Demand in the Unites States is so great that developers can’t build these micro apartments quickly enough and has led to the Mayor of New York, Michael Bloomberg, seeking proposals from developers to construct micro apartments on city owned land that contain at least 75% of apartments ranging in size between 25 – 28 square metres.

And of course that makes them a highly affordable option, something that Perth is also lacking at present.

The added beauty of these kinds of apartments is that it caters to the sole occupant, which can then free up the 3-4 bedroom apartments and homes, close to the CBD for couples and families.

We can no longer make one style of product and hope it meets the needs of all Perth’s buyers. Choice is vital and micro apartments are one of the solutions which we would like to see heralded to WA.

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PropertyESP undertakes long term sales analysis to tell our clients about various property cycles. We are different from other companies. We like to get into the nitty gritty which then guides development decisions. Basically we make sense of property.

Housing Affordability – Part 2

There has been much discussion lately about housing affordability and in particular with key workers.

For the purposes of this blog post, we will focus on key workers as being nurses, teachers, police, firefighters and paramedics – all of which are important roles for our community and many of those roles tend to be located in some of Perth’s more expensive suburbs.

So how far should a key worker commute to work, just to serve the community in which you live?

Those of you who have been following the PropertyESP blog will know we recently undertook a detailed analysis of the suburbs surrounding the new Fiona Stanley Hospital, so let’s start there.

Example 1: A nurse working at Fiona Stanley Hospital

According to the industrial award for nurses working at Fiona Stanley Hospital, a registered nurse can expect an annual salary of around $84,000 after 8 years of continued work and training. This would give a couple who were both registered nurses a household income of around $167,800. Assuming no dependents, no other commitments and credit / store cards to the value of $20,000, they could borrow around $1,000,000 to finance the purchase of a house.

Could they afford to live in Murdoch, where Fiona Stanley Hospital is located?

Yes, they could – the median house price of $770,000 is comfortably within budget. However, with only 13 house sales in Murdoch in the quarter to September 2015 they might find it hard to find one. The good news for our nursing household is that there were many more sales (106 to be exact) in a neighbouring suburb (Kardinya) and it’s still within their budget and only a short 5 minute drive to work.

But what if they decided they wanted to base their borrowing on one income? The State Government is foreshadowing job cuts, the economists are predicting an interest rate hike later this year and after 8 years in the workforce our nursing couple household may want to think about starting a family. Basing their purchase on a single income would be sensible (and used to be what families did).

A single nurse’s income of $84,000 would give them a budget of $428,000 for a house. With that budget, it gets much harder for our nursing household to find a property.

Using REIWA’s Interactive Map showing sales information for the suburbs, we were looking as far afield as Kenwick and Gosnells (around a 20 minute drive away with no traffic) to find suburbs with a median house price that was within budget. And if they opted for a house priced in the lower quartile for the suburb, they could shave 5 minutes from their commute with properties in Thornlie and Langford.

We have looked at other occupations including teachers, firefighters and police and the same principle applies to all of these occupations.

This leads to the argument that diversity of product in the market place is essential in order to provide choice within a variety of budgets.

If you are interested in viewing the rest of our case studies – then please contact us at info@propertyesp.com.au.

Housing Affordability – Part 1

Median housing prices have been falling in recent quarters, but at PropertyESP we also like to look at the long term trends. We’ve recently been delving into median price trends in the Perth market since electronic recording of property sales data began … back in 1988.

As the Median Sales Prices chart shows, and as many of us who’ve been in the property industry for that long know, residential housing in Perth has undergone a long period of growth in sales prices. And that rise in prices for houses and units has been largely driven by a rise in the underlying value of land. Yes, there have been dips from time to time, but we’ve rarely seen more than two consecutive quarters of decline.

Source: REIWA. Note: Median prices for 1988-2010 were for the calendar year. From 2011 onwards, quarterly results are provided.

So anyone buying their house to “hold” (or live in) for a decent period of time will have seen the value of their property grow.

This brings us to the issue of housing affordability. We often hear tales in the media of how this steady growth in the price of housing has made property unaffordable for people entering the property market for the first time (first home buyers). Our research has also found that divorced couples having to split the proceeds of the sale of their house so each can buy a new property with only half the value of their investment are also affected. But just how unaffordable has residential housing become?

We decided to do a little back of the paper napkin maths to gain an insight into this.

The 5 yearly Census of Population and Housing provides us with our best measure of median household income per year. Overlaying that on the median sales price chart, we can see that household incomes (the vertical gold bars in the following chart) have also grown over time.

Source: REIWA; ABS Census of Population and Housing

But they haven’t grown as much as housing prices.

Back in 1991, when the median Perth household earned $29,484 per annum, that household could buy a house for $87,500. The median house cost 2.97 times the median household income.

Ten years later, in 2001, the median Perth household earned $46,774 per annum. That year, they could buy a house for $169,000. Whilst that’s a whopping 93% increase in the median house price over 10 years, their incomes have also increased fairly strongly (up 59%). That $169,000 house cost 3.61 times their income. And if they decided to buy a block of land, they could do so for $83,000 … which was 1.77 times their income.

It was the 2001-2006 period that saw property prices really take off. That five year period saw median house prices rise 142% to $410,000. Household incomes didn’t keep pace, with the median income only rising 21% to $56,472. In 2006, the median house price was 7.26 times the median household income.

By 2011, the growth in median prices had slowed, helped by a couple of dips in quarterly trends. And median income had risen 34% to $75,868. Residential property had become slightly more affordable, but it was still expensive compared to 1991. Median house prices were 6.06 times household income, units 5.25 times and vacant lots 3.10 times household income.

In conclusion: Housing has definitely become less affordable over time.

The next census is due in August 2016. Results won’t be available until the following year, but it will be interesting to see whether the quarterly downward trend continues and where household incomes sit. Will it still be as unaffordable as it was in 2011?

Stay tuned for our next blog post where we discuss key worker housing affordability – once again we will provide a worthy insight.

want to read more? visit http://www.propertyesp.com.au

Housing affordability opens doors!

I attended an interesting UDIA lunch where the topic of housing affordability was the key point of discussion.

What I thought was most interesting, was that Housing Minister Colin Holt showed a map of Perth and in 2001, most suburbs, other than those within 10kms of the City were deemed affordable. In 2011, the only suburb regarded as affordable was in fact Kwinana.

Certainly home ownership is still a romantic ideal for most West Australians, but for some – it could take 11 years to save for the deposit, if your income is just $60,000/annum.

I remember my first home, which was a duplex in Carlisle and cost $95,000. We bought it with a $5000 deposit and now some 20 years on we own close to $1 million in property, with very little residual debt. It is certainly a blessing that we invested when we did, but we also were realistic about where to get started.

I had a quick look at properties below $300,000 on realestate.com and was pleasantly surprised to find that there were 205 properties in this price range, with a large portion in Maylands and surrounds.

Yes they were one or two bedroom and yes they were older buildings, but the fact is, affordable properties are still out there.

Is it therefore that we just need to be more realistic about our desires and goals?

I am currently in Hawaii on a family vacation and was discussing with some of the locals about housing affordability. And if we think Perth is expensive, we really need to re-examine other cities. In Hawaii a one bedroom, 1970’s timber home (as pictured) is rented out between $1600-$2000 per month and that does not even include parking!

And while the WA State Government is making inroads with providing initiatives such as Key Start, there are other Cities in the world, whereby Governments provide cash incentives and rebates to developers in order to build and provide affordable housing.

Yes housing affordability is a growing concern, but with all due respect, if the relevant parties were to actually think outside the box, then this discussion could actually evolve into reality.