Housing affordability isn't at a crisis point: Frasers Rod Fehring – The Australian Financial Review

Frasers Property Australia boss Rod Fehring says sales are easier to achieve in locations with high amenity.

Housing affordability isn’t at a crisis point, but Australia needs to rethink the mix of homes with an emphasis on innovative rental products, Frasers Property Australia chief executive Rod Fehring says.

The “fundamentals” of demand and supply in expensive housing markets like Sydney and Melbourne are sound because good locations with amenities like schools and transport – rather than low interest rates – will always attract more demand, which drives up prices.

But a “crisis” has loomed because household incomes have not escalated at the same rate as house prices, leaving “an opening gap between those who could be in the market and those who can’t”, Fehring says.

“When we look at the pattern of house price growth, we find that sales are easier to achieve in locations with high amenity, particularly those with close proximity to public transport and good schools. It’s the access to amenity that is driving the price appreciation,” he said.

“Amenity drives interest, and as it does, densities go up. This is why apartment commencements are equal to, if not greater, than detached housing at the moment.

“Interest rates just unlock the opportunity for people to consider trading up or trading down. But interest rates are not the ultimate determiner of what is bought where.”

Yellow Brick Road chairman Mark Bouris shares the same thoughts, that house prices have “undergone a permanent shift”.

“Parts of Sydney and Melbourne that were once the ‘cheaper’ alternative have been pushed ever higher. Population pressures, poor planning and long-term undersupply mean that there are no bargain basement suburbs left, anywhere in the inner or middle rings of those cities,” he said.

“The traditional model of homebuying is changing, and we have to change with it.”

Those who are not able to buy will now have to rent, and research from groups like Rent.com.au shows many are prepared to rent both for that reason and to free up capital to invest elsewhere if rental products with long leases are offered.

“And this opens up opportunities for the industry to respond,” Mr Fehring said.

The most popular long-term rental product is the build-to-rent apartments or “multifamily” units, as they are known in the US. These are units built by institutional groups and managed and serviced by a single professional property manager. They often provide very long leases.

But developers keen on the sector including Frasers, Mirvac and Stockland are still crunching numbers to make them work.

“With interest rates starting to rise, there is a window open now, one that will stay open for two years, perhaps three,” Mr Fehring said. “But it won’t be open for ever. As soon as interest rates go up beyond a certain point, the equation won’t work.”

Measures such as the federal budget’s managed investment trusts could help make those numbers work, Mr Fehring said.

But build-to-rent apartments cannot be just “excess stock from an unsuccessful tower development”, he warned.

“It’s a very different product – one that strips out the unnecessary, like gymnasiums, pools and cinema rooms – to enable the cost base to be reduced,” he said.

Those who do not want to rent have started moving to regional areas where prices are lower, Mr Bouris added.

“More people are considering investing there and living elsewhere. Others are making a move out of the major capital cities altogether.”