National Overview:
The "chronic housing shortage crisis" is a myth

I've  never met Toby Hall, but based on what he wrote in the Sydney Morning Herald recently I can say this about him: he doesn't  check his facts before he shoots from the lip.

Hall,  the chief executive of Mission Australia,  has become the latest in a long queue of writers to prove the old adage about  lies, damned lies and statistics. He wrote a piece in the SMH about housing issues in which every opinion was based on  accepting Housing Industry Association propaganda as fact.

Unless  he's been living in a cave over the past five years, Hall should know you never  accept anything the HIA says as fact. The association has been running a scare  campaign for years, trying to batter government into making decisions  favourable to builders and developers.

Their  strategy is to make alarmist claims about housing shortages and poor  affordability. They know media will print their material as long as it's  negative and sensational.  They are  neither balanced nor objective - everything they do is highly political.

Last  month the HIA fired off press releases around the nation claiming we are not  building enough houses - and it's all the government's fault. It is surprising  newspapers would print this because the HIA has been making the same claim for  the past five years. It was the same media release they've issued many times before  - only the dates were changed.

But  most major media outlets across Australia  published it. In most cases, the journalist failed to do what journalists are paid  to do: ask questions and subject the press release and its authors to some  scrutiny.

The  HIA claims we are currently 100,000 homes short of demand. Here are some of the  questions journalists should have asked:

How did the HIA arrive at this figure? What is  the HIA's motivation for making such claims? What is the HIA's vested interest  or political motive?

If Australia has such a chronic  shortage of homes, why are HIA members not out there building new homes? That  is, after all, their job.

If we are so short of homes why were there so  few sales of new homes last year, at a time when the Federal Government was  handing $21,000 to buyers of new homes, along with generous handouts from State  Governments?

If we are indeed 100,000 homes short of  demand, where are these 100,000 households living? I know from my daily  research that vacancies are low in many locations but they are not zero. And,  in some locations, vacancies are well above 5%.

  Sadly,  most writers and media commentators presented the HIA's data as fact. The  notion that we have a crippling housing shortage is now accepted as truth by  the media, the public, the Reserve Bank and politicians.

It  is also accepted as fact that we will be 500,000 short of demand by 2020 - even  though this a prediction of a situation 10 years into the future from an  unreliable source.

Toby  Hall, writing in the SMH, said: "The latest news on  housing affordability makes depressing reading. It shows just how far we have  to go to make sure there's enough housing for all Australians … If we can't  boost affordable housing stock more, Australians will be forced to live in  substandard accommodation ... From my perspective, one of the great roadblocks  to getting things moving is local government …"

Every attitude  he expresses comes direct from the HIA manifesto. And he's not alone. Stuart Fagg of ninemsn Money wrote  this: "Australia  must build an additional 500,000 houses by 2020 or face a crippling rise in  house prices that will make home ownership out of reach for many. The Housing  Industry Association (HIA) says that unless a skills shortage in the building  industry and "onerous" planning regulations are addressed, Australians face a  future of high interest rates and unaffordable property."

One or two  journalists at least presented the HIA material as opinion rather than fact.  Chris Zappone, a Fairfax journalist, departed from the HIA song sheet long  enough to disclose this important information: "The practice of land banking by  developers - or purchasing and holding land as a future investment while  letting its value rise - has also been blamed for making housing less  affordable. In Melbourne, for example, there are about 100,000 house lots zoned  for home building, but only about 1400 of those lots will be put on the market  this year.'

The  Age also  rejected the developer manifesto when it reported: "Private developers and land  holders have almost 70,000 house blocks - worth an estimated $12.6 billion -  that the state government has zoned for residential development and approved  structure planning, according to real estate group Oliver Hume. Government  developer VicUrban is sitting on a further stockpile of 25,000 housing lots  listed for development across Melbourne,  but selling just over 700 lots a year, or 3 per cent of its stock."

The reality is that any shortage of housing  is moderate and is caused by the factor described in the preceding two  paragraphs - developers, who are members of lobby groups like the HIA, are  land-bankers and drip-feed product to the market to suit their own profit  objectives.

For their representative bodies - which  include the HIA, the MBA, the PCA and the UDIA - to blame the situation on  government is simply dishonest.

Feature topic:
Putting the affordability issue into perspective

Some  Australian newspapers have declared the Great Australian Dream dead. No one  will be able to afford to buy a house ever again, apparently.

The  dishonesty of such claims hasn't stopped great numbers of people from believing  it. We now have an affordability "crisis". Once again media beat-up has turned  a lie into a fact.

Here's  what's really happened …

There  was a decline in the affordability index in the December Quarter, following  recent rises in prices and interest rates. The decline has come from a  particularly favourable level, with affordability healthy from late 2008 to  late 2009 (thanks mainly to the decline in interest rates from late 2008).

In 2009 we saw an uplift in  activity at the lower end of the residential market thanks to softer prices and  lower interest rates - which combined to improve affordability.

Multiple interest rates cuts in particular led  housing affordability conditions early in 2009 to their best levels in five  years. The HIA-CBA First Home Buyer Affordability Index published in February  2009 revealed a 39% increase in the affordability measure in the December 2008  Quarter. The Index improved from 110 in the September 2008 Quarter to 153 in  the December 2008 Quarter, the most affordable level since March 2003.

Since then, there has a  reversal in the affordability situation, thanks to price growth since mid-2009,  coupled with interest rate rises from the Reserve Bank.

But the HIA-CBA  Affordability Index for the December 2009 Quarter was 120, still better than  the levels which existed through 2007 and the first three quarters of 2008.

Throughout 2005, 2006, 2007  and most of 2008, the Affordability Index hovered between 100 and 120.  Affordability has now returned to what we might call "normal" levels.

One  problem with affordability indexes is that they deal with median situations -  and newspaper analysis overlooks that there are many locations in each major  city that provide homes at prices well below median levels.

I  also question the Commonwealth Bank data which claims that the typical  first-home buyer in Australia  paid $486,000 in the December 2009 Quarter and needed an income of more than  $100,000 to afford it.

The  official independent source of data, the Australian Bureau of Statistics, shows  that the average first-home buyer loan is currently $284,000. That suggests  that the typical first-home buyer is buying property in the low $300,000s. The  HIA-Commonwealth Bank figure is simply wrong.

Rismark's  affordability index, a more credible source than the HIA-Commonwealth Bank  data, shows that Australian house prices are around 4.1 times disposable  incomes, which is where they have been for the last six years.

It confirms my view that affordability is where  it's been for a long time. It's not easy for young families to become  first-time home owners, but it never has been. It's certainly no harder today  than it was 30 years ago when I bought my first home, a process that required  hard work, many sacrifices and a series of compromises. Nothing much has  changed.

Melbourne and Victoria:
Finally adopting a market leadership role

In the previous edition of this report, I wrote this  about Melbourne: "This is the market I watch the most  among the capital cities. I see it as under-rated and under-valued. Perth,  Darwin and Canberra, as well as Sydney, have higher median prices than Melbourne. The thing  about Melbourne  is that it never has a raging boom year. It's a steady market, which always  delivers solid results. It's a little like Canberra in that regard."

Since I wrote those words in November 2009, Melbourne has finally,  belatedly, produced the growth spike that I have been expecting. In the latter  part of last year and into the early months of 2010, the Melbourne market has surged. All the major  sources of research data on prices rates Melbourne  the No.1 growth city among the state and territory capitals.

The property market surge was inevitable because Melbourne is the population growth capital among the  capital cities and it's under-pinned by one of the strongest economies in Australia.

The latest ABS data shows that Victoria added more to its population in the  12 months to October 2009 than any other state. Overseas migration continues to  be the largest component of that rise.

State Final Demand in Victoria is up 2.1% on a year ago, compared  with the 1.6% national average growth. Job ads grew 3.5% in Victoria in January, the second highest  growth among the states and territories, with the unemployment rate 5.2%, below the national  average of 5.4%. Retail turnover is up 6% on a year earlier, compared with the  5.3% national average.

Building approvals are up 20% on a year earlier,  compared with the 3.2% national average growth, and housing finance for  owner-occupiers grew 12% in 2009, in line with the national average.

Unlike in Sydney, where  politicians announce new infrastructure projects and later scrap them,  things get built in Melbourne. New transport infrastructure like  EastLink and the Deer Park Bypass is in place and new work includes an upgrade  of the Monash Freeway, the new Geelong Bypass and the Peninsula Link road  project. These things impact on real estate in various ways.

The Mornington   Peninsula is a good  example. In a couple of years, residents of peninsula suburbs like Dromana and  Safety Beach will be able to drive to central Melbourne via Peninsula Link,  EastLink and the upgraded Monash Freeway. The peninsula is already the growth  king of Melbourne  real estate, in terms of long-term growth in median prices.

Investors should keep an eye on key regional centres  in Victoria's south-west, such as Warrnambool  and Portland.  This area is busy with new developments of energy projects, such as gas-fired  power stations and wind farms. Changes to the Federal Government's renewable  energy target scheme has benefited this area, and put a series of wind,  geothermal and wave power projects on the front-burner. 

Conclusion:
Accept nothing, believe no one

If you're a property buyer, or a prospective one,  question everything you read and hear about the property market. Accept nothing  at face value.

That includes everything I've written in this report.  Take what I say on board but do not treat it as gospel. While I try always to  base my analysis on facts, with the benefit of three decades' experience in  Australian real estate, I've been known to get it wrong.

When reading real estate analysis in media outlets,  keep in mind that very few writers on real estate have any credentials. They  are not real estate experts. They are conduits for the opinions of industry  organizations or individuals who are seeking to advance political views or to  attract publicity by making sensationalist claims.

Information presented as "research" is often  propaganda in disguise.

Accept nothing as fact and do your own research. Only  then can you buy real estate safely.