Housing affordability – the calculation which takes a snapshot of
median house prices : prevailing interest rate : Average Income

Plus a few other inputs – like the cost and availability of rental housing and sense of job security.

The formula works like this, an increase or decrease in interest rates will reflect directly onto house prices. An increase or decrease in average income will reflect directly onto house prices. Both income and interest rates being reasonably flexible are more quickly reflected in the market than housing supply, which tends to be less “elastic” partly because the timeline between planning and construction and also because of the lead time in buyers and sellers matching needs and prices.

“Affordability” will always waver around the 30% +/-3% in any snapshot calculation as the less elastic supply of housing adjust more slowly to an instantaneous change in interest rates or incomes (in a low unemployment work market).

Snapshot taken immediately after a change to say, interest rates will be momentarily distorted until housing supply has adjusted to the change in the market.

Comparing housing booms to dot com bubbles is hyperbole in the extreme.

Building more houses is one thing, public / municipal ownership of housing is another. More houses will reduce prices, just as fewer houses will increase prices.

“At a recent housing ministers' meeting the Labor states proposed shared equity and rent/buy schemes”

Things like joint ownership were tried in the 1980 and failed in the 1990s when those most vulnerable, who accepted this “socialist soft option”, were financially crucified by it.
Even UK charities criticized it when suggested in UK

http://www.in2perspective.com/nr/2005/05/shelter-attacks-shared-equity-plan.jsp;jsessionid=62ACC524253D4BEC544BC35057ACF42C

A responsible government would recognize, just as Canute recognized he could not control the tide, they cannot control the tidal forces which work in every supply and demand situation. It is the arrogance of the unlearned to presume otherwise.

A market left to its own devices will adjust with greater responsibility and efficiency than when some theorocrat starts meddling with the process.

Spider “We need fascist policy”

Please elaborate on exactly what “fascist policies” you are talking about.

Thanks for your analysis, Col. But one thing you didn't factor in is the availabilty [some would say the over-availabilty] of credit and the current guidelines for assessing feasible mortgage credit limits.

As I said before, there was a time when the allowable mortgage limit was determined by just one income. Then the rule was changed to allow the combined income of both partners to be the determining factor. And, almost immediately, single residential block prices increased dramatically.

I realise that this is not likely to happen, but I would like to see the following:
An announcement that the combined income mortgage rule would hold for the next twelve months.
Then the measure would change to a combination of 100% of one income plus 90% of the other, for the following twelve months.
Then 100% of one plus 80% of the other for the next twelve months.
And so on, until we got back to the one income limit system.

Spider, if you dont like the prices where you are then either downgrade your own ambitions for your house, or move. I said earlier that I bought my first house for $65,000. That was only 3 years ago, and was in an area where most 3 bedroom homes were selling for $150k+. You can imagine then what mine might have been like compared to the average. But that got me into the market. I am a member of generation Y, but I dont blame the baby-boomers for the current housing issues. I blame it squarely on those with ambitions that are too lofty for their incomes. I was brought up being taught that if you want something, then wait 24 hours before buying it, and spend that time talking yourself out of it. Heck, I remember one Christmas Santa's present to each of us was a $2 coin in each stocking. Until I left home and started earning my own money, I only had 2 sets of clothes that were new, and I was the eldest child. The rest came from older cousins and from Vinnies. My friends are horrified when I buy SH clothes for my kids. Heck, my daughter has been known to wear clothes that my mother made for me. I have a handmade (home grown) wool jumper that my mother knitted for an older cousin that has just turned 40. It needs the elastic around the bottom replaced, but otherwise is in beaut condition.

As a result of my thift and willingness to start at the bottom, I have around 30% equity in my home, with repayments less then $160/week. In comparison I have friends that pay in excess of $500/week. Guess who is winning!

Col, fascist policy overall where homeless are housed, educated and trained. Policy of industry and commerce which would stop destructive globalism. Housing for all people, not just rich. Not in a communist way either.

CountryGal, I grew up very poor and yes, 3 years ago it was easy to buy a house at such a low price. You show me where now. Look at Perth about to become more expensive than Sydney. Read my post above about prices. There is nowhere that has low housing. Families and aged are become homeless because of all this. I have children which is even tighter. Not everyone wants something so expensive. I'm happy to buy the house I'm now which would have increased in price by about $150,000 in less than two years.

This is all very wrong and when the time comes, this greed will be our downfall.

Country Gal - I admire your efforts to make a life for yourself - but why should those on average and lower incomes be forced into outer suburbs with poor infrastructure and services - and often great difficulty making their way to work? Sure - it makes affording a house easier - but for equity reasons, there should not be such a geographical division.

Rex – the “affordability” calculation is not influenced by lending practices, although as you point out, the market price will be influenced by the availability credit.

I do not think the notion of a single wage only being allowed as a basis for assessing “capacity” is any longer appropriate simply because the nature of work and division of responsibilities within a “typical” marriage has changed. If a couple decide that the priorities in their life is to work to buy a house and forego children for a time, why should their decision be restricted to the equivalent opportunity of a single person?
Further, in these days of lo-doc lending, a form to which I have availed myself and am very satisfied with, where proof of income is irrelevant, merely the borrowers undertaking to their capacity to service the debt, reduces the contemporary suitability of your suggestion. I would note part of the process is the desire for all those funds being poured into superannuation to be placed back into the market in a reasonably secure investment, which is housing mortgages represents a source of non-bank lending which was not so commonly available a few decades ago.

It is all a side effect of a "deregulated" banking system.

Country gal – congratulations, you have done as my elder daughter did, bought when she had saved about $40K and has watched her first property improve significantly in value over then past 5 years. Now at age 26 is into her second property. Responsibility is to avoid being a burden on the state by looking after your own future, no one will care enough about you as much as you do yourself.

Spider “fascist policy ……”

So what are these “fascist policies” to which you allude but have not explained?

Sorry to seem obtuse but your statement means nothing unless it is a little more “specific” to your meaning of.

I am particularly interested in the “fascist” solutions you have for “housing the homeless” and what you have in mind as “industry and commercial” policies to stop “destructive globalism”.