Chris Vedelago
Date: December 11, 2011
Source: theage.com.au
DESPITE one of the worst property slumps in two decades, many first-home buyers are finding it harder than ever to enter the market, with research showing they need at least $100,000 after tax to buy in half of Melbourne's suburbs.
The research, commissioned by The Sunday Age, has been labelled ''staggering'' by housing advocates, who say Melbourne's long-term problem with affordability is a threat to the economy. It paints a bleak picture for average income earners still hoping to get a foothold on the property ladder, with price rises in the lower end of the market bucking the overall price-slide trend. This is locking many families out of home ownership anywhere except on the far edges of the city's urban fringe.
Even the recent interest rate cuts and government incentives such as a 20 per cent discount on stamp duty, aren't enough to offset the growing costs, according to the research by Fairfax-owned Australian Property Monitors.
Analysts calculated how much a household had to earn after tax in order to buy a house in suburbs across Melbourne. The hypothetical buyer had a 10 per cent deposit, spent 40 per cent of their after-tax income on mortgage repayments, and qualified for the 20 per cent stamp duty cut and $7000 first home owner's grant.
The analysis revealed that a household needed to have nearly $103,000 a year in disposable income - roughly $145,000 of taxable income - to afford an established home at the city's median house price of $535,300.
With the average Victorian clearing about $52,300 after tax, first home buyers would be priced out of half of Melbourne's suburbs. Only a few places in the inner city, including Maidstone and West Footscray, would be considered affordable.
''These figures are just staggering - but they also show what first home buyers have known for a long time, that home ownership is out of reach for people on average incomes,'' said Sarah Toohey, campaign manager for Australians for Affordable Housing. ''Right across the city, we're pricing out average working households - and that's not good for the economy. We need teachers, aged care workers, truck drivers, all kinds of workers to be able to live affordably in our cities, to keep the economy running smoothly.'' On these figures, a police constable (4th year) clearing $48,327 and a teacher (accomplished) on $49,890 after tax would find it very difficult to buy a home. Even a federal backbencher clearing $100,250 a year would struggle to buy a house alone.
Although Melbourne's property market is experiencing one of its worst runs in 20 years - the median house price fell nearly $21,300 in the 12 months to September - most of the value shedding has occurred in affluent inner and bayside areas, while many so-called affordable suburbs have experienced price rises.
''Looking at the median price for the whole city sometimes doesn't give you the full story of what is happening,'' APM economist Andrew Wilson said. ''There's certainly been a softening in the upper part of the market, but the situation can be much different at the lower end.'' House values in 115 of the 139 suburbs still priced below the city's median are either holding firm or increasing.
The result is that households earning $45,000 to $80,000 have seen their purchasing power erode in traditional ''mortgage belt'' suburbs such as Melton, Pakenham and Craigieburn. Most affordable areas are now in middle and outer suburbs at least 15 kilometres from the CBD; some are more than 50 kilometres out on the urban fringe.
BIS Shrapnel analyst Angie Zigomanis said the price rises were being driven by competition between first home buyers and other owner-occupiers searching for affordable places to live.
''It's a flight to affordability. People are moving into areas they can more easily afford. When prices go too far, people will re-adjust what they are buying,'' he said.
The problem could be even more severe than the APM figures suggest. A recent report by the Australian Housing and Urban Research Institute found that higher income families still struggle to afford a home because their living costs are higher.
''A single person on $100,000 and a family on $100,000 are going to require very different take-home incomes to afford a median property,'' the institute's Professor Terry Burke said.
Public sector worker Heather Scott gave up on her dream of owning a house in the inner city because she couldn't afford it and instead bought a two-bedroom villa unit in West Footscray for $385,000.
She's glad she bought when she did. ''It seemed to get more and more competitive with villa units with people who can't afford houses all starting to flock to those,'' Ms Scott said.