Of these measures, perhaps the most commonly adopted is to reduce the cost of mortgages. This is usually achieved by cutting the official cash rate, which usually prompts lenders to drop the price of their home loan products, by reducing the monthly interest charged on them.
While cutting interest rates can bring down the cost of mortgages it also can encourage many more people into the market, causing short term price surges. Building more homes therefore seems a more logical solution, particularly given what we’ve seen following interest rates cuts in both Australian and New Zealand over the last five years.
Still, additional housing requires complimentary infrastructure and this isn’t always easy to achieve, especially with land close to CBDs being in such limited supply.
Much of the focus in Sydney has therefore been on building new units in areas close to existing public transport links, such as main rail lines in the inner city, inner southern suburbs and along the north shore.
Indeed, the majority of new housing in Sydney has been infill development in already established areas, as opposed to greenfill which is on newly developed land, according to the Grattan Institute. It’s a strategy that replicates how many Asian cities have handled rising populations amid land shortages. Onward and upward, so to speak.
For the record, 212,000 new homes were built in the 2014/15 financial year, according to the HIA, which is a suitable annual output to help meet the ongoing shortfall.
FINDING THE BALANCE
There have been plenty of cranes on Sydney’s horizon of late, but Daley says it’s difficult to know what impact all the new apartment blocks will have on the broader supply-demand equation, and ultimately on affordability levels.
“A very large part of the price of any house in Australia, is effectively the price of the land,” Daley says. “You’re pricing on scarcity value. So then by definition, so if you increase the number of homes you reduce the scarcity value and the prices will fall, or be lower than otherwise.”
ANZ economist Daniel Gradwell says while many people might prefer a detached house, for now they're moving into what they can afford.
“We’ve got this situation in which more than half the net jobs in the five big cities between the last two censuses are created within the CBD and the 10km around it, but more than half the houses are 20km from the CBD," he says.
Asian capitals like Singapore and Hong Kong are renowned for their expensive property markets, simply because their populations have grown rapidly and land has become incredibly scarce.
Amid similar challenges, Sydney now ranks second to Hong Kong and ahead of San Francisco, London and Vancouver on Demographia's 2016 list of least affordable housing markets. Auckland came in equal fourth.
There’s little doubt cities like Sydney and Auckland have increased in popularity among global investors, given their relatively affordability compared to other international hubs like Hong Kong, New York or London. But because many investors aren’t afraid to pay well above market value, government leaders face a persistent problem: how to ensure affordable property options.
Gradwell says we're seeing a real divergence between the financial position of existing owners and potential buyers who simply don't have the equity behind them to engage in these sorts of heated markets.
"They're [first homebuyers] kind of getting it on two fronts because prices are rising very quickly of course, and so their deposit needs to rise, but at the same time their return on savings is at record low levels because interest rates have fallen so far," Gradwell says.
"For somewhere like Sydney, you're saving for around 10 years based on an average income. That's far worse than at any point on our records.
LESSONS FROM ABROAD
A series of steep price rises since the mid-nineties has seen the Singaporean Government has used a range of macroprudential policies to cool its market. The intention has been to not only stabilise housing prices, but reduce returns for investors and preempt a housing bubble.
Singapore also has a range of schemes to ensure low and middle income owners can afford a home, usually a government subsidised flat managed by the Housing and Development Board (HDB).
These units, which are typically built within large self-sufficient communities, have formed the basis of Singapore’s property policy. As such, the majority of Singaporean residents are said to live in this type of housing, which they usually own.
But tackling unaffordability closer to home may require other ideas. For example, the Auckland Council was the first in New Zealand to sign a housing accord with central government to sharpen the focus on housing and land supply. The new rules aim to cut out the red tape around freeing up land and fast-track proposals that can help increase the level of affordable housing built.
In the end though, some of the onus must fall on residents. Buying a property may be more challenging now than it once was, but it’s not impossible. There are still cheaper properties in Sydney and Auckland beyond the inner and middle ring suburbs, which at least meet the immediate need for ownership some people have.
As the Grattan Institute says, any barriers that might discourage people from moving into housing that would be a better match for their needs should be investigated.
Because needs and wants are two entirely different things.
Jean-Paul Pelosi is a freelance journalist