Can Sydney property be made more affordable?

Australians-are-paying-more-on-mortgage-repayments_157_6006092_0_14101800_300Sydney’s property market is notoriously one of the most in demand and complex that Australia has to offer. With prices rising and real estate never spending too long on the market, buyers have to be quick and well-prepared if they are going to invest.

April data from SQM Research showed that Sydney’s property listings declined 11.2 per cent from the previous month and were down 13.7 per cent from a year earlier.

This came at a time when property prices across the Harbour City were rising. SQM reveals that house prices in the region were 12.3 per cent higher during the week ending May 5 than they were 12 months earlier. This compares to an 11.2 per cent increase in unit costs.

Rising values are recognisably a problem for Sydney’s first-time buyers, but is there anything that policymakers can do to rectify the situation?

Reasons for unaffordability

Several reasons for increasing unaffordability have been considered over the years, with one of the biggest areas of discussion being the role of overseas investors. There has been speculation that a growing number of international investors are entering the Australian property market, therefore pricing out domestic buyers.

However, the Foreign Investment Review Board (FIRB) Annual Report 2013-14 concluded that this isn’t the case. Instead, these investors are having the opposite effect on the market and are instead driving down values.

This is mainly because investors are keen to construct new homes in Sydney and other parts of Australia – and greater supply means prices will come down.

Property Council of Australia Chief Executive Ken Morrison explained: “This investment is not competing with Australians looking to purchase existing houses, it’s helping to support the construction of new housing for everyone.”

The Property Council said lawful foreign investment in Australian real estate should not be deterred, as this may stop players from entering the market at a time when they are needed most.

FIRB revealed that 23,428 foreign investment approvals for real estate were granted in 2013-14, up from 12,025 just 12 months earlier. This led to $74.6 billion of proposed investment that the sector would not have benefited from if overseas investors had been frozen out of the market.

In fact, real estate emerged as the largest destination for investment in terms of value. It ranked ahead of the likes of services, as well as mineral exploration and development. China, the US and Canada were the biggest investors over the course of the year in question.

Focus on rentals

Rental costs are also a key area of concern. The recent Senate Affordable Housing Report outlined that both public and private finance would be necessary to plug the shortfall in available rental properties throughout the nation.

At present, levels of investment in the sector are just not enough to support the number of homes that are needed for renters. Property investors are also likely to be experiencing frustration as they can’t find the homes they need to attract tenants.

March 2015 data from SQM Research places Sydney’s vacancy rate at just 1.6 per cent, making it one of the lowest in the country. This marks a fall of 0.1 per cent from a month earlier

Members of the Senate committee said the Australian government needs to put local, state and national incentives in place to encourage the construction of more affordable housing. As the FIRB report suggested, giving way to overseas investment could be an effective meansĀ of achieving this goal.

The property industry as a whole is recognising that affordability needs to be moved up the agenda, it’s now just a case of deciding which is the most effective way of making this happen.

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