Hello,

This time, weve decided to look at the two most critical aspects of the property market at the moment - affordability and the under-supply of housing. New figures show that housing affordability has just reached a new low.

The Real Estate Institute of Australias (REIA) figures for the December Quarter 2010 show that the proportion of household income required to meet home loan repayments is now at 35.3%, which is up from 30.7% a year earlier. NSW remains the least affordable state in which to own a home, with 39.5% of household income going towards mortgage repayments. Interestingly, perhaps due to the high number of 'double income families here in the ACT, our state remains the most affordable place to buy a home with 18.5% of our income going towards our mortgages.

Another point of interest is that the proportion of household income required to meet rent payments has fallen and now sits at a national figure of 25.1%, re-inforcing the idea that in dollar terms, its currently more affordable to rent than buy.

The National Housing Supply Council, 2nd State of Supply Report 2010 (well worth the read) estimates in their "medium household growth scenarios" that the number of households in Australia is projected to increase by over 160,000 per year.

Adding to this, building approvals across Australia are weak, which will only contribute to the supply issue. ABS reports that the number of total dwelling units approved March 2010 to March 2011 was down 14.5%.

So what can we conclude from all of this?

1. The ongoing affordability issue will make it harder for people to enter the property market initially and encourage them to rent for longer

2. Interest rate rises will exacerbate the affordability issue and for this reason I suggest that any further increases will be limited

3. Due to lack of supply and continued strong employment, reasonable population growth and net migration, rents will continue to increase

The Real Estate Institute of Australia has released data for 2000 - 2010, comparing changes in CPI with changes in median rent. Data shows an increase in the CPI of 25%, whilst rents increased 80% over this same period. In light of the factors mentioned above, we would expect rents to continue to rise at a faster rate than the CPI.

We are at a turning point (or saucer point) in the market and the longer the base forms generally the greater the next upwards move will be. Providing care is taken with regards to the type and location of the potential property purchase, there may be some good value opportunities during this 'flat market for investors who like to take a long term view.

In this newsletter, Article 1 covers the abolishment of exit fees on home loans and Article 2 provides tax tips which may help you to minimise your tax bill. Our last article looks at the challenge of trying to strike a balance between work and family life.

We hope you enjoy this newsletter. Please feel free to pass it on to your family and friends.