by Michael Matusik Exploring the affordability issues behind the global Demographic report. To view the Demographic report visit http://www.demographia.com/dhi.pdf

Well thanks, Demographia, for rubbing our noses in it again. We all know Australian housing is unaffordable, so we could do without the annual reminder. We would do something about it if we could, but doing such requires government action, which we all know isn’t going to happen. Well, not with the current group of cretins at the wheel.

But low affordability doesn’t mean ‘housing bubble’. Residential property in Australia is overvalued, no doubt, but assuming people keep their jobs and continue to pay their mortgages, a slow house price deflate (in real terms) is the most likely outcome. House prices are unlikely to grow much (for the vast majority of dwellings) until wages and rents catch up, which, unfortunately, could take up to a decade. This happened in the 1990s and history is likely to repeat.

House prices are unlikely to grow much (for the vast majority of dwellings) until wages and rents catch up, which, unfortunately, could take up to a decade

While it is point scoring, it is worth highlighting some flaws in the Demographia reporting:• The report doesn’t take into account the type of dwellings – a 250-square metre detached house on 800 square metres of freehold Aussie dirt is not the same as a two-bedroom 62-square metre Hong Kong apartment.

• The work doesn’t take into account equity,which on average exceeds 60 per cent of all Australian home owners (including investors)and is as high as 80 per cent for owner-occupiers, excluding recent first-home buyers.

• The income data is questionable as it is ABS-based. One in eight does not fill in the income question at census time, and ATO figures show an average household income 12 per cent higher than what the ABS reports.

Why? It is harder to lie to the ATO. Also, I am pretty sure (based on past Demographia studies anyway), that gross rather than net incomes are used, so therefore recent tax cuts are not factored in either.

• Regional areas like the Sunshine Coast support a high proportion of semi-retired and retired households that earn less (via traditional means) but own expensive properties. So the measure of wealth is inaccurate.

No doubt the creation of affordable new homes is an issue and a major one facing the country. But unfortunately, its resolution remains largely within the control of governments. What needs to be done in this regard includes:

• Expedite rezoning, approvals and development time frames.

• Judicious application of taxes: remove GST on new home construction; reduce stamp duty on newly constructed dwellings; and have annual infrastructure charges over the life of the project rather than the user paying upfront.

• Provide crucial infrastructure in advance of need.

• Decentralise the workforce and population to regional centres.

• Match migration supply to jobs needed.

So nothing much will change, resulting in people moving less, more renovating in place and fewer property transactions as people’s priorities change. Not a bad thing really, except if you make money out of real estate transactions and new development activity.

Oh, but one thing is certain, Demographia will issue the same findings next year, too.

Thank you to all who have donated so far to Lucy’s fundraiser for the Queensland Cancer Council. For those who haven’t, please consider doing so – $10 or $20 goes a long way. A special thanks to Grant Dennis and the Dennis Family Corporation for their generous donation. It is somewhat fitting given that this missive is about housing affordability and the Dennis family is one of the few real suppliers of such stock. Visit www.everydayhero.com.au/lucyarnold.