Home prices set to surge again, fuelling debt crisis
HOME prices are about to surge again and fuel a phenomenon that a leading property analyst has dubbed "peak debt", where mortgage repayments outstrip the spending capacity of home owners.
Australian Property Monitors predicts that in the next decade many in the mortgage belt of "average Australia" will reach a point where they are unable to put food on the table because loan repayments swallow their incomes.
Yesterday the Labor leader, Kevin Rudd, confirmed housing affordability as an election issue by calling a summit to address it. Housing, finance and community groups will discuss more than 30 proposals put forward by Labor aimed at boosting home ownership.
Australian Property Monitors, a property analysis group owned by the publisher of the
Herald, Fairfax Media, upgraded its forecast of home prices over the next year from stable to rising by 5 per cent.
The political stoush intensified with the Prime Minister blaming the states and the NSW Treasurer blaming higher interest rates for keeping home ownership out of the reach of many people.
The general manager of Australian Property Monitors, Michael McNamara, said he coined the term "peak debt" to echo the "peak oil" theory, which suggests the production of oil has peaked and is running out. Likewise the capacity to borrow will simply run out, he claims.
"Australians want more affordable houses for children but not at the expense of their own house price growth," Mr McNamara said.
Census figures published last week show national home loan repayments soak up 31.6 per cent of average household income, up from 27.7 per cent in 2001.
Independent economists agreed that a crunch time was on its way in which Australians would reach their capacity for borrowing. At that point they could put a dent in economic growth as their spending power was removed.
Mr McNamara predicted that if average house prices continued to outstrip rises in incomes at the current rate, by 2016 there would be no money left after paying a mortgage.
Steve Keen, associate professor at the school of economics and finance at the University of Western Sydney, agreed, saying household debt was roughly 25 per cent of disposable income in 1990, and that proportion had risen to 150 per cent. "We can't keep on doing that forever," he said.
But "peak debt" was not a theory shared by interest rate analysts in the financial markets. A Macquarie Bank interest rate strategist, Rory Robertson, said the census figures showed one-third of home owners did not have a mortgage.
He said those vulnerable to high debt had bought into the market in the past three years and only comprised about 10 per cent of the market.
"The Reserve Bank of Australia will manage interest rates in a way that protects Australian borrowers," Mr Robertson said.
The Reserve Bank meets in Sydney today to discuss rates. No move is expected this month, but a strong economy is expected to fuel two more rises over the next 12 months.
Mr Rudd said housing affordability was a crisis facing many working families, "and we don't want the Federal Government just to play the blame game with this and blame somebody else".
He sought to cast affordable housing as a central plank of good economic management.
But the Prime Minister, John Howard, reiterated the Government's claim that the lack of home affordability was a result of state governments not releasing enough new land.
A spokesman for the NSW Treasurer, Michael Costa, denied land supply was a problem. He said there was already enough land available in NSW to accommodate 33,000 new homes. "The biggest threat to home affordability remains the current interest rate environment," he said.
Among Labor's proposals is allowing first-home buyers to divert pre-tax income into an account to build a deposit. The money might be treated the same way as salary sacrifice contributions to super.
Figures in Labor's housing proposals show the last four interest rate rises have added $91,677 to interest repayments over the life of a loan for the median-priced Sydney home. The figures also show the annual income needed to buy a median-priced home in Sydney has risen from $62,800 in 1996 to $145,412 this year.
Housing groups welcomed Labor's proposal for a national summit and for a superannuation-style savings scheme for first home buyers.
The Housing Industry Association said Labor had thrown down the gauntlet to the Federal Government, which "has been mute on policy measures necessary to deal with the housing affordability crisis".
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