Australia is experiencing its worst housing affordability crisis on record, according to the recently released PropTrack Housing Affordability Report for 2023-24.
The report reveals that a typical household earning just over $112,000 per year could afford only 14% of all homes sold across the country, a steep decline from 43% in 2020-21.
Rising property prices and increasing household debt are pushing home ownership further out of reach, particularly for first-home buyers.
In response to this growing crisis, REA Group has submitted six key recommendations to the Inquiry into Financial Regulatory Framework and Home Ownership, aimed at improving housing affordability and boosting home ownership prospects for Australians.
The six key recommendations from REA Group include:
- A Dynamic Serviceability Buffer
REA Group suggests that the Australian Prudential Regulation Authority (APRA) should implement a more flexible serviceability buffer for home loan assessments.The current 3% buffer, which assesses borrowers’ ability to repay their mortgage at an interest rate 3% higher than the actual loan rate, is considered too restrictive in the current high-interest rate environment.
REA recommends adjusting the buffer based on interest rate cycles, with a wider buffer when rates are low and a narrower buffer when rates are high. This change could improve access to finance for creditworthy borrowers and increase housing supply by facilitating pre-sales for new developments.
- Replacing Stamp Duty with Annual Land Tax
The submission advocates for the removal of stamp duty, a significant upfront cost for home buyers, in favour of an annual land tax levied on all properties.By replacing stamp duty, which affects only a small percentage of transacted properties, with a broader land tax, the housing market could become more fluid, allowing Australians to buy and sell properties with fewer financial barriers.
This move could also encourage downsizing and better utilisation of housing stock, while providing a more stable revenue stream for state governments.
- Reducing Development Fees and Charges
REA Group calls for a thorough assessment of the fees and charges imposed on new housing developments, which have contributed to rising construction costs and reduced the viability of new housing projects.The recommendation seeks to find ways to lower these costs in order to encourage more new housing supply, which would help address the growing housing demand and alleviate affordability pressures.
- Improved Data Collection on Housing Supply
A key recommendation from REA is for the collection of national data on approved lots and units that are yet to commence construction.This would give policymakers better visibility on the potential housing supply pipeline and help them monitor whether supply is keeping up with population growth.
Currently, only data on building approvals is widely available, but this doesn’t reflect how much housing is ready to be built.
- Longer Mortgage Terms for First-Home Buyers
To make home ownership more accessible for first-home buyers, REA proposes the introduction of longer mortgage terms of 35 or 40 years.This would reduce monthly repayments and increase borrowing capacity, allowing buyers to enter the market sooner.
However, this longer term would only be available for a buyer’s first property purchase and could not be extended to refinanced mortgages.
This approach would give first-home buyers more flexibility without putting undue strain on financial stability.
- Introducing a Public Securitisation Model for Mortgages
Drawing inspiration from Canada’s successful model, REA recommends that Australia investigate a public securitisation model to lower mortgage costs and increase competition in the lending market.The Canadian system has been in place for 37 years and has helped reduce mortgage funding costs, saving borrowers an estimated $870 million annually.
A similar model in Australia could provide smaller lenders with access to cheaper funding, levelling the playing field with major banks and making home ownership more affordable for borrowers.
These recommendations aim to address some of the systemic barriers to housing affordability in Australia, from restrictive lending practices to high transaction costs and limited housing supply.
With housing affordability a key concern for many Australians, REA Group hopes these measures will help reverse the current trend and restore the dream of home ownership for future generations.
