Housing Market Under Pressure

8 June 08

There have been headlines about the rental crisis for months, but you have to experience it first-hand to get an inkling of just how tough it is for prospective tenants. The situation can only get worse, with rents tipped to rise by as much as 50% in the next four years. The problems began around 2000, when world share markets plunged and investors everywhere fled from shares to the perceived safety of property. As a result, house prices started to rise and a worldwide property boom began. This flight to property was exacerbated in Australia because the Howard Government introduced the first-home-owners' grant to compensate for the GST, but made the mistake of including it for the purchase of established homes, even though they are not subject to GST.

It's hard to believe today, but in 1977 in Brisbane, average earnings were $14,410 a year and a house cost about $31,000 – just 2.15 times earnings. Thanks to the boom, house prices skyrocketed in the period between 2000 and 2007, and the average price of a home is now $410,000 - more than seven times earnings.

Think about it in practical terms. A first-home buyer who wants to buy a $410,000 house, which is the average price, will have to save at least a $50,000 deposit, and have the ability to then make mortgage repayments of $2900 per month or $667 per week. It readily becomes obvious why there is a rent crisis.

The Rudd Government has announced a significantly expanded national rental affordability scheme to encourage investors to build. Under the scheme, the Federal Government will provide private investors with tax credits for 10 years on new properties that are rented at 20% below market value with state and territory governments agreeing to provide $2000 a home by way of cash payments or concessions on stamp duty. It all looks good on paper, but it's a lousy deal for small investors. On the Government's own figures, the rent on a three-bedroom home would fall from $350 to $280 a week, which is a reduction in rent to the landlord of $3640 a year. After allowing for the $6000 tax credit, they are only $2360 a year better off than if they went their own way.

Source: The Sunday Mail 8^th June 2008