Entering the Housing Market Remains a Distant Dream for Many
- Aug 19, 2024
- 3 min read
It is no secret that Sydney’s housing market has been under immense pressure over the last few years with affordability declining for both part-time and full-time workers. A study by Bangura at University of New South Wales and Lee at University of Technology Sydney delves into the factors driving this trend and examines the challenges faced by prospective homebuyers in Greater Sydney.
The study set to establish the difference in part-time and full-time employment’s ability to afford housing in Sydney. However, their key finding is that relying on the full-time median income is insufficient to enter the housing market and seems unachievable even by 2030. Factors such as household wealth, housing taste and employment type play a role in determining affordability.
Foreign ownership has played a significant role in driving up housing prices in Sydney, particularly in recent years. International investors have generated intense demand which has driven house prices past affordability for local households. In 2022-2023, foreign investments accounted for $885.5 M in residential real estate purchases equating to 656 homes in New South Wales (Register of Foreign Ownership, Australia Taxation Office). This has made it more difficult for residents to enter the housing market. Off the back of increasing demand, factors such as population growth, urbanisation and economic prosperity have additionally contributed to demand, which has outpaced supply.
Part-time workers face unique challenges when entering the housing market as lower income levels make it difficult to save for a deposit, meet growing mortgage repayments and other associated costs. The insecurity associated with part-time employment adds additional challenges in qualifying for loans and securing finance. Given this, the study set out to uncover the differences in part time and full-time worker’s affordability, but have come to a grim conclusion.
Results
The authors of the study divided the city into 3 sub-cities encompassing the Western Parklands city, Central River city and Eastern Harbour city. Adopting the idea that spending more than 30% of income on a mortgage is unfavourable, this was the line for unaffordability.
The results found that this 30% threshold was passed for all three sub cities for both full time and part time employees. It suggests that residents of Greater Sydney would not be able to buy any home without foregoing more than 30% of their median income and in some cases, more than their whole median income.
Government Intervention?
The NSW government has identified the potential population growth by 2041 in greater Sydney to reach 6.1m with 900,000 homes in NSW to pace with the demand or 28,500 homes in Sydney every year. Thereby, NSW Treasurer has emphasised the plan to build 30,000 homes on government-owned land in attempt to chase booming demand. It seems like a simple solution, increase in demand calls for increasing supply, however, there are obstacles such as planning systems, developer behaviour and construction costs according to Parliament of New South Wales.
Expansion in Greater Sydney is reliant on strategic planning that requires changes to land use restrictions, upzoning, transportation in the area and duties to native land. Policymakers view planning regulations as a form of zoning tax, that the added labour of planning and zoning contributes to higher prices for buyers (Glaeser and Gyourko), although this has been widely disputed by the Parliament.
Why is Supply Difficult to Chase?
Developers often engage in land banking where they buy large areas of undeveloped land with the intention of developing it into smaller plots for residential properties as well as resources needed to reside there such as grocery stores, hospitals and shopping centres. However, their behaviour can impact the supply of housing, as they are the primary suppliers of land in new developing areas in Greater Sydney. According to Liverpool University Press, developers are more likely to adjust the prices of constructions than the building rates, thus, rendering the construction process costly and difficult. Furthermore, the construction process can be slowed with price increases whilst in the meantime, rising house prices deliver high profit margins.
Lastly the cost of construction in addition to the cost of land has made multiplying supply more difficult. CoreLogic research director Tim Lawless has indicated that the price of construction is 30% more expensive than pre-COVID due to an extended period of escalating costs. This is further reinforced by geopolitical crises throughout the world that delays construction supplies, driving costs even further.
Housing supply is failing to creep up to exponentially increasing housing demand with catalysts in its way.
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