HIA affordability claims 'dodgy', says economist

by Calida Smylie28 Mar 2014
The Housing Industry Association has released its housing affordability index for the December quarter of year, registering a slight fall – but one economist said the index is useless anyway due to skewed data.

The HIA and Commonwealth Bank housing affordability index showed an easing of 0.5% in the December 2013 quarter but is 8.4% higher than December 2012 quarter record.

“Those in the housing market or who have been on its cusp of and then entered in recent years have experienced a considerable improvement in affordability. This improvement has been driven by an easing interest rate cycle which now sees borrowing costs at or near record lows,” said HIA chief economist Harley Dale.

He predicted further house price hikes throughout the year.

But economic commentator Leith van Onselen told Australian Broker the HIA index is “dodgy”, misleading and does not stack up compared to other housing indexes.

While the index says the December median dwelling price of $470,400 has increased by 1.8% over the year and has fallen by 1.1% since December 2011, the ABS’ house price index recorded 9.5% growth over the year, and 12.3% growth since December 2011. 

“HIA’s measure of house prices seems to be way off. If you read the methodology they use they base it on the median price of home loans that the banks issue, but it doesn’t take into account changes in composition of homes. There are heaps of house price measures out there that give you a sample for the entire market,” van Onselen said.

“The thing that’s particularly curious about it is they’ve used a bias for the sample of house prices but when it comes to income they’ve just used the ABS income measure for the nation as a whole. So while they’ve adjusted down the house prices because the sample’s skewed, they don’t adjust the fact that the people buying that home are probably on a lower income. So it’s not a particularly good measure.”

As the figures are based on the relatively limited dataset of CBA's loan book, the median price in the index does not reflect broader home price data.

Earlier this week the Real Estate Institute of Australia hosted a roundtable to discuss housing affordability.

Last November the proportion of first home buyers in Australia dropped to its historically lowest point and action is needed by the government to address housing affordability, said attendees, which included Social Services Minister Kevin Andrews, REIA president Peter Bushby, MFAA CEO Phil Naylor and HIA CEO Graham Wolfe.

Andrews talked about the coalition’s election policy to address housing affordability and indicated his willingness to work closely with states and territories to find a solution.

However, van Onselen said there is no such housing policy within the coalition’s 48 policies and discussion papers in their 2013 election platform.

“The federal government has absolutely nohousing policy, no housing minister,” he said. “All this stuff is just window dressing and empty platitude.”

The roundtable suggested greater consumer awareness and government support of lenders’ mortgage insurance – and enhanced competition amongst lenders – would drive product innovation, especially focused on prospective first home buyers.

This would be helped by a strong securitisation market, and unlocking the potential of shared equity as an alternative form of housing finance should be considered, they said.
Taxes were also identified as one of the important factors determining housing supply and influencing housing affordability, with state-based stamp duties discouraging housing turnover.

However, van Onselen said the discussion is just hot air and nothing is going to change anytime soon.

“The problem is not one of these organisations [at the roundtable] would ever support any measure that would lead to lower house prices, which is basically what you need to improve portability. Without that, it’s pretty much a waste of time. The problem is house prices are too high, and unless the take steps to improve this fundamental issue, you’re not going to get improvement in portability.”


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