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This book reviews a range of available approaches for the measurement of housing affordability, and examines recent empirical evidence on housing affordability in Australia.



1. Introduction

Due to its importance (discussed in detail in Chapter 2), the housing sector has always been the topic of much discussion. In recent times, it is even more so due to the global financial crisis (GFC) of 2007/09 and the lurking possibility of a global double-dip recession in 2015/16.

Muharem H. Karamujic

2. Housing: Why Is It Important?

A thorough understanding of the importance of housing, although not the direct focus of this book, is vital for understanding the complexities of the behaviour of all interested parties engaged in the housing market (such as the general population, governments at all levels, construction companies, materials suppliers, financial institutions, etc.) and through this, for comprehensive understanding of the fundamental forces that determine the level of housing affordability. It is commonly accepted that the well-being of both individuals and families is substantially affected when the need for satisfactory housing is not met. Access to adequate housing has long been viewed as a basic human right and is considered to be an integral factor for the enjoyment of other economic, social and cultural rights. According to the United Nations (UN) Committee on Economic, Social and Cultural Rights, satisfactory housing consists of: legal security of tenure; availability of accessible services, facilities and infrastructure; habitability; accessibility (e.g. access to employment, health services, schools, etc.); cultural adequacy; and affordability.

Muharem H. Karamujic

3. Major Reasons for an Increase in the Number of Institutions Offering Home Loan Products and in the Number of Home Loan Products Offered in the Australian Home Loan Market

Having completed our exposition on the importance of housing, the primary motivation of this chapter is to briefly explore the major reasons for the recent explosion in the number of institutions offering home loan products and in the number of home loan products offered in Australia. In doing so, the following factors will be considered: the size, composition and changes in both total and home lending in Australia; the consequences of the two most recent rounds of financial system deregulation; trends in interest rate and property prices and; recent changes in the typical borrower’s behaviour.

Muharem H. Karamujic

4. Introduction to Contemporary Residential Mortgage (Home Loans) Lending Products

The core purpose of this chapter is to provide a detailed account of various contemporary home loan products. This is relevant for this project for the following two reasons: (i) it will serve as a background to discussing contemporary housing affordability measures (the focus of Chapter 5) and (ii) it will aid the interpretation of the modelling results (Chapter 6).

Muharem H. Karamujic

5. Contemporary Housing Affordability Measures

As previously outlined, this book has two main purposes: (i) to review a range of available approaches for the measurement of housing affordability and (ii) to examine the evidence for housing affordability in Melbourne, Australia. This chapter focuses on the first purpose i.e. reviewing a range of available approaches for the measurement of housing affordability. It should be noted that the focus of this book is on housing affordability in metropolitan areas and not in rural and regional areas where the issues concerned may, to a certain degree, be dissimilar in nature and scale. This exemplifies the fact that the housing market as a whole is comprised of a string of different housing markets segments.

Muharem H. Karamujic

6. The Geography of Housing Affordability and Housing Investment Opportunity: A Case Study of Melbourne

Due to its importance, the housing sector has always been the topic of much discussion. In recent times, it is even more so due to the GFC of 2007/09/10 and a possibility of a double-dip recession in 2015/16.1 With respect to the housing sector, if anything, the GFC has highlighted the need for additional research on understanding how housing markets work. While a pre-GFC increase in house prices was shared with many other countries (Kim and Renaud, 2009), there has been no material GFC instigated correction in house prices in Australia. In fact, quite the opposite happened in that post-GFC house prices continued rising This is especially evident in Melbourne where, according to the ABS (2010), in the year to September 2010 quarter (from the corresponding quarter of the previous year), established house prices increased the most among all the capital cities (18.8 per cent).2 Though impressive, the house price increase in Melbourne for the year to September 2010 quarter was lower than the increases recorded in the previous three-quarters: 24.3 per cent in the year to June 2010 quarter, 27 per cent in the year to March 2010 quarter and 19.5 per cent in the year to December 2009 quarter.

Muharem H. Karamujic

7. Conclusion

This book focused on providing an introduction to the logic and concepts of housing affordability, an overview of the measures of housing afford-ability and an empirical examination of housing affordability. The book is suited to anyone having some acquaintance with the basic elements of economics and financial acumen. No advanced mathematical background is required of the reader, although a superficial knowledge of basic applied techniques may ease the reader’s passage through some parts of the book.

Muharem H. Karamujic


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