Home' InDaily : September 18th 2009 Contents September 18 - 24, 2009
The dream of home ownership
remains out of reach for tens
of thousands of Australians
despite government efforts to build
supply, a new report shows.
The shortfall between underlying
demand and supply of homes
will ease in coming years from
65,100 in 2008 to 56,600 in 2009, the
Housing Industry Association said
in its quarterly state and national
While housing starts fell by about
17 per cent to 132,000 in the past
financial year, the HIA predicts a
rise of 6 per cent in 2009-10 and 17
per cent in the following year.
Nonetheless, supply still isn't
keeping up with demand, the HIA
"There are considerable supply-
side constraints to growing the
new home construction industry,
such as lack of adequate land
supply, high new home taxation,
and lack of skilled labour," the
"Considerable further progress
will need to be made in addressing
the supply-side problems if we are
to move considerably beyond 163,000
starts early next decade."
Meanwhile, analysis by
researchers from South Australia's
Flinders University revealed home
ownership in the 10 years from 1996
rose only 0.8 per cent despite strong
economic growth and low interest
rates in that period.
The Flinders Institute for
Housing, Urban and Regional
Research analysis found home
ownership fell by 15 per cent over
the two decades to 2006 for low
income earners over 45 years of age
and medium-high income earners
under 45 years.
Other findings included large
gains in national income from the
resources boom were "wasted"'
by increasing house prices and
accumulating debt to unreasonable
The analysis found the first-home
owners scheme boosted home
purchases for people under 25 years
of age, but many lower income
earners in the 25-44 age bracket
were unlikely to ever own their own
homes because their parents were
spending their inheritances and
prices remained high.
Institute adjunct professor Joe
Flood said the "the writing is on the
wall for the Australian dream."
"The country that promised limit-
less land, cheap housing and near
universal home ownership to all
comers now has the most expensive
housing in the world amid very tight
housing and land markets and little
prospect of restoring the balance,"
Dr Flood said in a statement.
The shortage of homes along
with the excess demand has helped
underpin home prices over the past
year, analysts say, which rose 3.3 per
cent in the year to June, according
to Australian Property Monitors,
defying a global trend of falling
house prices over the past year.
The HIA said the amount of new
home starts would rise by 20 per
cent over the next two years, helped
by the first-home buyers' grant,
increased spending on social hous-
ing, as well as low interest rates.
"Since October, 2008, when the
first-home grant was boosted,
lending commitments to build new
houses have increased by about
60 per cent," HIA chief economist
Harley Dale said.
"But local government permits
to build new houses have increased
by a much more modest 20 per
cent, indicating there is a lot of
new building work to come into the
The RBA kept interest rates on
hold this month at a 49-year low of
3 per cent, although investors and
economist are betting on rate hikes
to come by the end of the year.
In August, the RBA lamented the
industry's inability to create new
homes while interest rates are low
and the jobs market was weaker.
Even for those who manage to buy
into the housing market, the huge
costs make the leap more fraught
with worry, rather than security.
Cara O'Dwyer bought a house in
over the weekend with her mother,
because "it was the only way we
could afford to".
The 23-year old said she had been
to a number of auctions where the
home sold for $100,000 more than
the asking price, before she and
her mother -- also a first-time home
buyer -- closed on the property.
The rising cost of homes is
"definitely" a worry, she said.
"The repayments might be fine
now but if the interest goes up again
a lot of people aren't going to be
able to afford to repay them and end
up losing their house. So it's a big
For now Ms O'Dwyer said she
is excited to be a home owner,
although she had not priced in the
effect of an interest rate rise into
her monthly repayment costs.
Australia's insurers are likely to raise premiums
as they seek to offset higher claims costs and as low
interest rates cut returns from investments, accord-
ing business services firm KPMG.
But recent entrants into the local market, including
Australia Post as a distributor, could limit those
increases to premiums, KPMG's 2009 general insur-
ance industry survey shows.
"We can expect to see higher premiums as insurers
seek to manage increased claims costs and lower
investment returns," KPMG insurance sector leader
Brian Greig said.
Australia's total general insurance profit fell
slightly to $3.197 billion in 2008/09, from $3.210 billion
the year before, as return on assets and return on
equity both declined, KPMG has calculated.
The impact of extreme weather events, including
the Victorian bushfires and Queensland floods,
together with the economic downturn had pressured
earnings. In response to those headwinds insurers,
including Insurance Australia Group Ltd, Suncorp-
Metway Ltd and QBE Insurance Group Ltd, had
already been raising premiums in response to the
That had resulted in gross written premium from
Australia increasing 6.4 per cent to $22.2 billion in
Insurers also needed higher returns from insur-
ance sales because interest rates were at record lows
after the huge cuts late last year and in early 2009.
Insurance companies mostly invest their reserve
funds -- the money they have to cover claims -- in
highly rated fixed interest assets, which now have
much lower yields than a year ago.
Mr Grieg said it was too early to say how much
effect new entrants would have on the market.
"New distribution channels such as The Buzz,
Virgin Money, Australia Post and Coles may provide
robust competition in the car and householder
sectors," he said.
Australian insurers may also start to benefit from
better weather patterns.
The move to a dry El Nino weather pattern, from
the wet La Nina pattern of the past few years, means
that there are likely to be less claims related to
"There will be less rain, less flooding, less storms
and less hail"" Mr Grieg said.
Australia's general insurance industry is
dominated by QBE, IAG, Suncorp and German giant
Insurers blame it on the rain
Insurers have blamed an increase in claims from one-off
weather events for rising premiums.
Thousands of Australians are still struggling to get on the property ladder.
Photo: Joe Armao
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