FHBs booted as house prices outpace incomes

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The AFR has a nice piece of analysis from Marcus North, formerly the doyen at Fujitsu Consulting, on why first home buyers are being locked out of the property market:

The proportion of home loans offered to first-time buyers has fallen to its lowest level in nearly a decade, despite record low interest rates, high demand, growing market confidence and strong prices. Underlying supply problems have been exacerbated by fear of unemployment, continuing nervousness over economic problems in Europe and the United States, and ­difficulties saving deposits.

“But the most critical element that is driving the low take-up rates is directly linked to the relative ratio between house prices and first-time buyer incomes,” Mr North said.

“House prices are running ahead of income growth for first-time buyers, and this means that unless they can get assistance from family, or have saved long and hard, they are unable to enter the market,” he said.

…“We need a significant increase in the supply of affordable property to slow house prices, and further cuts in interest rates will not help to address the price/income imbalance. It’s a chronic, long-term, structural issue in our housing market,” Mr North said.

No argument here. North rightly sees no fix in lower interest rates, either. Indeed, the research shows that the ratio of first-time home buyers’ median incomes to prices in NSW has grown a full point from around 6.5 to 7.5 since rate cuts began in 2011.

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Meanwhile, it’s crocodile tears from BIS Shrapnel MD Robert Mellor speaking at the boys club QBE LMI’s housing outlook briefing on Tuesday:

“An initiative like deferring stamp duty payments might take some time to get used to, but its something that would be more of a permanent change, rather than pushing or pulling demand forward, and then having the drop in demand later,” he said.

In other words more demand side pumping that will be rendered immediately useless as prices discount the tax cut. We need supply side reform not more tax distortions.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.