AUSTRALIA (Commonwealth Union)_According to a recent analysis from the International Monetary Fund, Australia could soon experience a “sizeable” crisis in the housing market as house affordability is fast dropping.
According to the IMF’s Housing Market Stability and Affordability in Asia-Pacific report released this month, rising interest rates and inflation have so far offset the positive effects of declining property values, and home prices are as much as 50% more than what the average household can pay.
In comparison to other similar economies, the housing and rental markets in Australia are among the most “misaligned,” and its people are among those who are most burdened by housing expenses, according to the IMF.
Its examination of price misalignment, which compares rents and home prices to income levels over long-term trends, points to a possible housing market meltdown.
In the paper, it was said that “our model-based analysis demonstrates that a large magnitude of price misalignment, when combined with the effects of high policy rates, can lead to a sizeable price correction, virtually similar to earlier instances of housing busts.”
“Despite lowering house prices, affordability is gradually declining as interest rates rise. In New Zealand and Australia, housing costs in 2022 may be up to 70% and 50% higher than what a median household can afford, respectively, and the typical household would have to spend more than 40% of its disposable income to purchase home priced at the median.
According to the IMF, Australia has one of the highest rates of “housing cost overburden,” or the proportion of people who spend more than 40% of their income on housing. Around 8% of the population in Australia is overburdened, which is higher than the OECD average.
The research states that “spending a significant portion of disposable income on housing-related expenditures is often regarded to be a symptom of unaffordable housing.”
A major worry for the future is that increased mortgage payments brought on by higher interest rates would make home ownership unaffordable for the typical household.
In Asia, there is a discrepancy between housing costs and income levels as well as other variables that make housing more expensive.
“With rising loan rates and inflation, people are dealing with a double blow to their budgets. Property affordability, which was already stretched before the pandemic, is deteriorating as a result of high mortgage payments, which are fueled by high housing purchase prices and rising interest rates, as well as high cost of living, according to the report.
Restoring housing affordability and… enhancing access to appropriate housing ought to be objectives for policymakers in the region, the IMF stated. “Housing is a crucial factor for health and education, and housing inequality can lead to perpetuating socio-economic inequality.”
The rapidly dropping home affordability will most certainly be felt the most by young people, but middle-class households will also be impacted.
Policymakers must carefully consider how their choices will affect home affordability since macroeconomic policies have a complex impact on the delicate balance between demand and supply conditions in property markets.
Governments were pushed by the IMF to lower restrictions on home ownership. According to the research, public housing in general “may play an essential role.”
