Australian Housing Occupancy And Costs: Owners With And Without Mortgages

Field of research: The income and housing survey is involved in the collection of data from the Australia households in order to value the costs of housing and its occupancy levels with the way they become different in a given time. In the year 2013-2014 and the year 2015-2016, the housing costs of the owners who have mortgage did not change and was fixed in the adjusted value with $452 average on weekly basis of the year 2015-2016; owners who have no mortgage increased to $51 every week, while renters did not change and were stable on $350 every week for the year 2015–2016. To the households who rent to the private landlord, the real terms didn’t change, in $381 every week during the year 2015–2016.  The tents of people that rent from the state or the housing authorities of the territory government rose by 10% at the real terms, to $167 every week. On average, households kept on spending 14% of their gross income on a weekly basis to the housing costs during the year 2015–2016.

Secondary data: Readily accessible data on housing occupancy & costs and more information  exist in the http://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/4130.02015-16?OpenDocument

RQ: a) What are the differences between the costs of owners who have a mortgage and the owners who don’t have a mortgage?

b) Is there any relationship between the housing cost and income ratios?

Variables: Housing Occupancy, Housing cost and Income ratios

Search terms: Housing occupancy, Housing cost, Income ratio. 

Merged articles and reference list: the ("4130.0 - Housing Occupancy and Costs, 2015-16", 2018) explains on how different types of houses are charged regarding costs, while Mendonça, Cruz, & Macieira, (2017) gives clear details on the number of different types of houses in Australia and their costs. (Bentley et al., 2016) explains the affordability of houses in Australia and the UK.

Differences in housing costs between owners with and without mortgages

Field of research: The income and housing survey is involved in the collection of data from the Australia households in order to value the costs of housing and its occupancy levels with the way they become different in a given time. In the year 2013-2014 and the year 2015-2016, the housing costs of the owners who have mortgage did not change and was fixed in the adjusted value with $452 average on weekly basis of the year 2015-2016; owners who have no mortgage increased to $51 every week, while renters did not change and were stable on $350 every week for the year 2015–2016. To the households who rent to the private landlord, the real terms didn’t change, in $381 every week during the year 2015–2016.  The tents of people that rent from the state or the housing authorities of the territory government rose by 10% at the real terms, to $167 every week. On average, households kept on spending 14% of their gross income on a weekly basis to the housing costs during the year 2015–2016.  

The major foci of Australian housing literature include home ownership, housing management, the usage of housing, housing design, as well as the linkages between housing between housing and various outcomes such as health. The thematic gaps that characterized Australian housing literature include the housing preferences and pathways of indigenous Australian citizens, comparison of mainstream and indigenous outcomes, indigenous control over housing provision and the sustainability efforts of indigenous housing and living environments. The project aims to evaluate the necessary and possible evaluation measures that can be used in differentiating the costs of owning a home as compared to renting a house, amidst the skyrocketed economy, ever since the onset of the housing bubble.

The guiding and leading research questions set for this research include:

1. What are some of the housing affordability outcomes for the Australian households in which the selected persons live?
2. What are the housing patterns that are synonymous with Australian rent vs ownership?
3. What are the metrics that define the housing affordability outcomes?
4. What are the preferences Australians attach to either rental housing or home purchase?

Field of research: The income and housing survey is involved in the collection of data from the Australia households in order to value the costs of housing and its occupancy levels with the way they become different in a given time. In the year 2013-2014 and the year 2015-2016, the housing costs of the owners who have mortgage did not change and was fixed in the adjusted value with $452 average on weekly basis of the year 2015-2016; owners who have no mortgage increased to $51 every week, while renters did not change and were stable on $350 every week for the year 2015–2016. To the households who rent to the private landlord, the real terms didn’t change, in $381 every week during the year 2015–2016.  The tents of people that rent from the state or the housing authorities of the territory government rose by 10% at the real terms, to $167 every week. On average, households kept on spending 14% of their gross income on a weekly basis to the housing costs during the year 2015–2016.

Secondary data: Readily accessible data on housing occupancy & costs and more information  exist in the https://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/4130.02015-16?OpenDocument

RQ: a) What are the differences between the costs of owners who have a mortgage and the owners who don’t have a mortgage?

This is because we are told that in the year 2015-2016, the housing costs of the owners who have mortgage did not change and was fixed in the adjusted value with $452 average on weekly basis of the year 2015-2016, at the same time we are told that owners who have no mortgage increased to $51 every week. On the hand, for the year’s 2013/2014, the housing cost of the owner with mortgage is 467 dollars while those without is 48 dollars. The difference is therefore

Income ratios spent on housing costs

                                                           

                                                                         Fig 1: cost of housing for owners with mortgage and without.

                                                                   

                                                                                    Fig 2: Cost variation for owners without mortgage

                                                                      

                                                                                         Fig 2: Cost variation for owners with mortgage

From the above we can see difference between the two is that as the price of the owners without mortgage increases linearly over the specified period (2013-14 and 2015-16), the contrary happens for the owners with mortgage whose housing cost decreases linearly with the same specified period.

b) Is there any relationship between the housing cost and income ratios?

                                                                

                                                                                          Fig: Housing cost and income.

                                                                    

                                                             Fig: Graph of variation for Housing cost with income for those without mortgage

From the above graph we see that when the income of the owners without mortgage reduces from 292 dollars to 290dollars, the housing cost increases from 48 dollars to 51 dollars. This means there is a negative relationship between the housing cost and the income for the owners without mortgage.

                                                                      

                                                           Fig: Graph of variation for Housing cost with income for those without mortgage

cost.

Variables: Housing Occupancy, Housing cost and Income ratios

Search terms: Housing occupancy, Housing cost, Income ratio. 

Merged articles and reference list: the ("4130.0 - Housing Occupancy and Costs, 2015-16", 2018) explains on how different types of houses are charged regarding costs, while Mendonça, Cruz, & Macieira, (2017) gives clear details on the number of different types of houses in Australia and their costs. (Bentley et al., 2016) explains the affordability of houses in Australia and the UK. 

Being a rising concern among Australians and many interested researchers, it was imperative for some writers and researcher to step forward and begun digging this circulated information about housing and renting in Australian, with the major goal of unearthing the truth and set scores clear. Some authors and writers classified in this literature review have boldly undertook to study the housing occupancy and associated costs in the Australian context, and further shed light to the matter.

Conceivably, the most common trajectory that can be safely followed while assessing whether house prices are overvalued, according to OECD (2013) and Economist (2013) is specifically by comparing the price-to-income ratio with the related long-term average. Based on this criterion, Economist (2013) report that Australian house prices are 24% overvalued. One of the major restrictions of the price-to-income ratio is that its purpose is somewhat blurred. For instance, the above two authors argue that, the mere being told that a house is costly relative to investor’s income does not project forth the real sensibility of the purchase. That drives one to seek to know the cost of the alternative, as in, should the interested investor go on to purchase, or should consider renting out? In case the question rests on either of the two alternatives, then the probability of deciding either of the two will be determined by the long-term benefit that shall be derived.

In bid to shed more light on the above solid statements, other writers have also given their side of views, which mostly coincide with the first two. The price-to-income ratio can be taken as a leading guide to future price movements, in case the series is mean-reverting. Accordingly, going by the Australian data, this is not true. Burke (2004) offers a measure of house prices that have arisen faster as compared to the incomes in the past decades. He further notes that trending ratio will mean that the recent levels are bound to persistently rise over the average ones, thus implying that the reported overvaluation of the housing in the country will definitely grow over time. Even though there is a high possibility of finding situations where prices vs incomes vary in a way that the ratios between the two is flat over some periods, Burke acknowledges that these measures trend strongly oftentimes.

Thematic gaps in Australian housing literature

As a continuation of Burke’s (2013) arguments, the Economist (2013) argue that a trending price-to-income ratio was obvious expectation that should overlay the entire argument. This is supported by the fact that an upward-trending ratio is the most basic expectation especially when land is said to be in limited supply. The views of Economist further resonate well with what economists in Australia believe: that as demand grows (whether with or without corresponding increase in income), both rental charges and prices for land and housing increase simultaneously.  Since demand for housing is always price-elastic, then this denotes that prices too rise faster than incomes just to satisfy the demand which is triggered by the supply. A tenacious movement in the opposite direction would always be anticipated whenever extra land become freely available, as discussed in detail by Walker & Ireland (2003).

Another realistic approach as given by Home Purchase Advisory Service (2010) is the one that of comparing price-to-rent ratios to their long-term averages. Based on this approach, OECD (2013) affirm that there is an overvaluation in the Australian house prices, by a 21% margin. The observation by OECD (2013) is that potential home and house purchasers not only look and consider the price of a house, but go an extra mile to examine the implication and possibility of the interest rates coupled with other running costs as well as other elements of the user cost of housing. Though it must be noted from the onset that the price-to-rent ratio may be stationary, the truth is that it mostly moves with these particular variables. To be specific, the price-to-rent ratio is Australia alone has been increasingly steadily over the past few decades, an indicator of the reflection of the decline in the user cost. To coin this statement even clearer, unless the user cost is anticipated to revert to its normal average, then also the price-to-rent ratio will not be moved as such (Walker & Ireland, 2003).

A vast body of research led and compiled by ABS (2006) has helped a lot to compare the user cost of housing with the rental fee and charges. Of key to note is that oftentimes, this work is solely motivated by the vivid desire to detect a “bubble” in the prices of houses. As a way of providing clearer illustrative instances, Brown (2010) have conducted exercises and researches for nations such as Ireland, Finland and UK, while putting Australia as the index nation. To begin with, Burke (2006) offers international comparisons that comprise of simple estimates for Australia. The limitation inherent in the study by ABS (2006) is that rents and prices come from different samples bearing dissimilar features. To illustrate further, owner-occupied houses tend to be larger and even more costly as compared to rental dwellings. With this in mind, it can be said that, a comparison of average process with average rents is the best reflection of quality differences, a problem whose solution can be tackled by focusing on changes. More profoundly, the focus lies on deviations from the average as well as on the questionable assumption that houses in Australia as fairly valued on the average basis (Economist, 2013).

Research questions

The work by Gallin (2006) differs from the work by Brown Couch (2010) in terms of how rents and prices are measured for the same properties. This enables us to hold housing quality constant and thus be in a position to assess the level of overvaluation. Several research studies have been undertaken to do this, including but not limited to Schlesinger (2013). The work of Home Purchase Advisory Service (2010) gives greater attention to technical issues that relate to the usage of hedonic regressions, such as implications of the measurement of Australia’s GDP. By focusing on data issues, it is realized that there exist significant differences derived from some of their constituent estimates. To understand this, data research provided by Walker & Ireland (2003) assumes no transaction costs for running costs, though these are very deemed to be important.  By attempting to offset these differences, it is imperative to include land tax by detailing assumptions for risk premium and depreciation. Giving close attention to the applicable data is bound to invariably increase the confidence that can be deposited in these outcomes. It will further facilitate the necessary extensions and variations. The final study under this literature is the one provided by Gallin (2006). By examining user cost of housing in Australia, the author seeks to address different questions that have been posed in reference with the compilation of the aforementioned research questions.

According to RP Data (2012), the increasing affordability issues have been said to increase the figure of Australian households in bid to arrest the housing stress as well as the demand for direct housing assistance. An assortment of programs and incentives have been made available to directly help with rental subsidies which come in hand with the provision of social housing. By comparing the literature on general housing studies, and provided the present indigenous Australian policy primacies, the apparent gaps that still exist in the housing literature include the following:

• the dependent relationship between demographic change and housing outcomes;
• the various dynamic housing preferences and pathways of indigenous Australian citizens;
• the systematic comparisons of population-wide and indigenous outcomes;
• the sustainability of majority of Australians’ living conditions and indigenous housing, whereby environmental, socio-cultural and economic concerns are completely considered in an integrated manner.

It is deemed prudent that any further research to be carried out on these sub-sets will greatly benefit from an appreciation of the cross-cultural context where indigenous housing has been in existence. Such research should thus be tailored to be specific, be respective-bound, and overtly sensitive to the needs of Australian nationals. Further research will accordingly benefit from a theoretical foundation, scaling beyond housing by specifically taking living conditions of Australians as the departure point.

Conclusion

The present literature review has dissected and laid open the growing affordability problem in Australia, whereby households are grappling with the ongoing crisis of spending more on housing as compared to the ratio of their earning incomes. The further demand for housing which is rising every day, not just in Australia alone, but globally was also the interest of the literature review. As noted across this literature review, the major problem is not attempting to help the Australians who are caught in affordability stress by introducing policies that are geared at alleviating the current problem, since this would only serve to drive both prices and demand even higher in the long run. The only option to go with, as seen from the suggestions of authors covered in the review, is to keenly address the supply side as well as the fringe areas where new releases could favor the buyer of the house and land packages. Nevertheless, what has been vividly identified is that the problem is not about increasing availability of land via Australian government land release for subdividing in the fringe areas of the big cities. There is a greater risk that the housing affordability in Australia is eventually becoming a self-perpetuating problem. This is because while developers have failed to acquire a reasonable return on development, still they are unable to provide a practical new supply needed to match the anticipated growth in population, thus making the existing prices higher. The common benchmark suggestions drawn from all the analyzed studies in the literature review are all dependent on the government action in one way, or the other.

References & Sources Used

ABS (Australian Bureau of Statistics) (2006). Census of Population and Housing, ABS, Canberra, viewed 14 January 2011. < https://www.abs.gov.au>

Brown Couch (2010). New Renting Laws Coming Soon, Tenants Union of NSW, Sydney, viewed 30 November 2010. < https://tunswblog.blogspot.com/%202010/06/new-renting-laws-coming-soon.html>

Burke, T. (2004) Managing Social Housing for Indigenous Populations, Institute for Social Research, Swinburne University of Technology, www.sisr.net/publications/0401burke.pdf

Economist (2013), ‘Mixed Messages:  America Surges, Much of Europe

Sinks’, The Economist, 31 August, online. Available at https://www.economist.com/news/finance-and-economics/21584361-america-surges-much-europe-sinks-mixed-messages 

Gallin, J. (2005). ‘Is Housing Overvalued?’, June 29–30 Meeting The Federal    Open     Market    Committee, Transcript (pp 4–7) presentation materials (pp 174–177). Available

https://www.federalreserve.gov/monetarypolicy/fomchistorical2005.htm

Home Purchase Advisory Service (2010). ‘A Guide to the Cost of Home Purchase’, (NSW) Family & Community Services Brochure. Available at https://www.housing.nsw.gov.au/NR/rdonlyres/83D01A0E-9D74-4CB5-81AA-ED1F63B55C69/0/Aguidetothecostofhomepurchase.pdf 

OECD (2013), ‘Economic Outlook, Analysis and Forecasts:  Focus on House Prices’, accessed 16 July 2013. Available at https://www.oecd.org/eco/outlook/focusonhouseprices.htm

RP Data (2012), ‘Property Owners Holding on to Their Homes for Longer’ rpdata. property pulse, accessed 16 July 2013. Available at https://pages.e.rpdata.com/Property-owners-holding-on%20to-their-homes-for-longer/  

Schlesinger, L (2013), ‘Surging Sydney to Lead “Uneven” Recovery in Residential Property Market over Next Three Years: BIS Shrapnel’, Property Observer, 30 June, online. Available at https://www.propertyobserver.com.au/finding/ residential-investment/24099-monday-july-1-flicker-surging-sydney-to-lead-uneven-recovery-in-residential-property-market-over-next-three-years-bis-shrapnel.html 

Walker, V. & Ireland, M. (2003). Sustainable Housing for Traditional Living Aboriginal People Moving to Adelaide: Malpa - Kutjara, Adelaide Central Community Health Service, November, https://www.facs.gov.au/internet/facsinternet.nsf/aboutfacs/ programs/house- malpa-kutjara.htm