Property

How have other countries tackled housing affordability?

Housing affordability

With Sydney now the second least affordable city globally, how is the rest of the world tackling this issue?

 

Solution 1: Increasing credit to lift supply

Country that did it: USA

Developing more housing is a straight forward way to lower prices, however this only works if there is an actual legitimate shortage in the first place. The sub-prime mortgage crisis in the US is the most spectacular example of increasing credit to lift supply far beyond what the market required.

People who couldn’t afford to pay back loans were lent money and thousands of homes were developed, many of which were not required by owner occupiers. There were also not enough tenants to support this increase in the supply of housing.

Not only did this eventually lead to the Global Financial Crisis, but confidence in housing plummeted and even now, many developers are still hesitant to start projects.


Housing affordability

 

Solution 2: Limit lending & credit growth

Countries that did it: China, Malaysia, Singapore

Controlling credit growth is already happening in Australia, particularly with investors. This is a common strategy used in other parts of Asia Pacific as well, especially in strong markets where there is a limited supply of property. By controlling the amount people have to spend, price growth can be limited.

Another monetary option is to increase interest rates and make borrowing more expensive which restricts the amount people can lend.

The problem for countries like Australia is that monetary policy is used to ensure the right amount of growth for the entire economy, not just the housing market.

 

Solution 3: Encourage council tenants to buy their homes

Countries that did it: England, Northern Ireland, Scotland

Cash incentives, which are currently in place, and incoming changes in Victoria, typically give first-home buyers more capacity to spend. But the challenge is to provide incentives that don’t lead to greater price growth.

In the UK, variations of the Right to Buy scheme have been in place since 1980. The policy lets council tenants buy their homes at lower prices.

Around a third of homes bought under Right to Buy have ended up as privately owned rental properties and as the supply of rental housing in the UK has failed to keep up with demand, private rents have increased at a greater rate than what the Government charges for their properties.


Housing affordability

 

Solution 4: Increase stamp duty (for some buyers)

City that did it: Hong Kong

In Hong Kong, higher stamp duty for everyone except first home buyers has had the unintended impact of causing a flood of funds into new properties, where developers were able to offer tax rebates, and in some cases funding.

The result was a substantial drop in buyers of second-hand homes, which led to the number of sellers also declining and the overall supply of property dropping significantly. The result,  a minimal impact on price growth.

 

Solution 5: Increase taxes for foreigner buyers

Country that did it: Canada

Taxation can also be used to restrict buyers, but it doesn’t always have the desired response. In Canada, a higher tax on foreigners looking to buy had the unintended impact of leading to a drop in the supply of housing.

With fewer buyers, many developers stalled plans and owners of existing properties elected not to sell.

 

Solution 6: Restrict some types of buyers

Country that does it: China

In China, a country that is frequently blamed for property booms, many moves have been taken to restrict some types of buyers. In some provinces, moves to restrict multiple home ownership have been implemented to reduce speculation by investors. First-home buyers are also restricted through greater requirements for down payments.

Unfortunately, these measures don’t appear to be cooling the market as much as was first hoped.


Housing affordability