Weekly Impressions: Home truths about housing affordability

Malcolm Turnbull confirmed that the federal election will be held on July 2nd. Housing affordability has already emerged as one of the battle-lines in the election campaign. Concerns about housing affordability have also fed concerns about Australia's 'big short'. In this post, Evidente challenges the view around the affordability crisis. Following last week's cut to Australian official interest rates,the typical house is now more affordable for a typical household than a decade ago. The misunderstanding arises from the availability heuristic; people discount the powerful effect of low mortgage rates compounded over a 25 year home loan and focus instead on the 'sticker shock' associated with record house prices that are vivid. Evidente has previously suggested that if there was a bubble in Australia's residential property markets, it might well persist due to an extended period of low interest rates and concluded that hedge funds seeking to capitalise on Australia's 'big short' would need an abundance of patience (and capital). The analysis here confirms there is no crisis in housing affordability and that Australia’s 'big short' is a myth. (VIEW LINK)