Less Stress despite rate hikes

By David Uren
November 28, 2007
Article from The Australian

HOUSEHOLDS are less likely to face problems paying their rent or their mortgage than they were six years ago, despite rising rents and interest rates.

Melbourne Institute research also shows there has been no significant change in the number of people spending more than 30 per cent of their household income on housing since 2001.

Addressing a forum on housing in Canberra yesterday, Melbourne Institute director Stephen Sedgwick said the findings reflected growing prosperity with low unemployment and and real interest rates that are still well below historic peaks.

The number of people who are struggling to pay their housing costs has dropped from 8.8 per cent to 6.6 per cent since 2001. He said the widespread perception that mortgage stress was growing reflected the experience of new entrants and people on the margins of the market.

However, a presentation to the forum by ANZ senior economist Paul Braddick said that while you could debate whether housing was in crisis now, it was almost inevitable that there would be severe housing shortages over the long term, particularly in NSW.

"We are building around 150,000 houses a year, but our numbers show we're going to need starts of 200,000 to 220,000 and there is a big question of whether the industry can produce that. If it can't,, we're looking at a housing shortage lasting for at least the next decade.''

The Melbourne Institute research is based on a longitudinal study that has been tracking more than 7000 people since 2001.

It found there had been an increase in the number of home owners paying more than 30 per cent of their income on mortgage payments from 6.3 per cent to 7.8per cent since 2001, but this had been offset by a fall in the number of renters in this position from 24.3 to 23.4 per cent.

Professor Sedgwick said there had been a fall in the number of low-income home buyers paying more than 30 per cent of their income on mortgages from a peak of 13.5 per cent in 2002 down to 9.6 per cent now.

The survey shows many households overcome the stress of their mortgage or rent payments within three years. Of the people who were paying more than 30 per cent of their income in rent in 2001, more than a quarter were below that threshold by 2004, while the share of owners stressed by mortgage payments dropped by a third in the same period.

Productivity Commission chairman Gary Banks said one of the factors pushing up the cost of housing was the desire for ever larger houses, with Australians now boasting the biggest homes in the world.

The average Australian house is 3sqm bigger than a US house, 30sqm bigger than the New Zealand equivalent and 130sqm bigger than a typical British home.