Combating Housing Stress
Housing is one of the most basic needs of individuals and families, and yet for many Australians it is becoming an increasing source of stress. The cost of housing is one of the largest ongoing expenses for our personal finances. The rule of thumb is that your housing expenses should equate for no more than 30% of your total income. To spend more than that is said to be an indicator of housing stress. With home prices relative to income hitting record highs, interest rates rapidly increasing mortgage repayments and a surge in the demand for rentals driving prices up more and more Australians are facing housing stress. If you count yourself among them then read on for guidance on how to combat housing stress and keep a roof over your head.
In recent months I’ve observed a big uptick in clients seeking support to recalibrate their personal budgets to cope with rise in the cost of living, especially the cost of housing.
The aggressive speed of interest rate rises - remember, we’ve had 12 interest rate increases since May 2022 - has caught people off guard. So much so that I’m actually beginning to hear stories of people selling and downsizing because they can’t cope with the cost of their mortgage. For the cash rate to jump from 0.25% to 4.1% in just over a year is huge. In the news we hear about the averages of home loan sizes and repayments. Which takes into account people who’ve had 10-15 years to pay down their home loans. But take a couple living in sydney where the median house price is $1,230,985. If they bought in the last couple of years, they’re likely to be carrying a mortgage close to $985,000 assuming they had a 20% deposit. The 12 interest rate hikes means that their home loan repayments have increase around $38,000 ($37,922) in the last 12 months. That is a lot of money to find in your budget suddenly. It’s a extra ask for those that have young families where they’re navigating reduced income and or the exorbitant cost of child care.
The rental market is no better with rental vacancies across Australia at an all time low thanks to a lack of supply, a rise in migration and the return of international students. Across capital cities, rents have climbed by an average of 11.7% this year (CoreLogic), with Sydney unit renters experiencing as much a 24% increase for the same period. The Corelogic’s economist Kaytlin Ezzy said it was the biggest increase the company had seen since its records began in 2007.
The expectation now is that, without significant policy intervention, Australia's housing crisis is set to worsen. Much of the solution lies at a policy level - supply, tax reform around negative gearing and capital gains tax, review foreign investment in residential houses, build more affordable and social housing, the list goes on. But as individuals, there’s little we can do about that expect to write to our local MPs and exercise our democratic power at the ballot box. So let’s focus on what we can do to combat the cost of housing at an individual level. In shot, we need to plan ahead, be proactive and seek assistance when required.
How to keep a roof over your head
Budget and Track Expenses: Create a realistic budget that includes all your income and expenses. Review it regularly, particularly as housing costs changes monthly which is likely if you are variable rate mortgage holder. Track your spending to identify areas where you can reprioritise, cut back and save money. By being aware of your financial situation and spending habits, you can make informed decisions about housing costs and prioritise essential expenses.
Negotiate Rent: If you're renting, consider negotiating with your landlord for a lower rent. If you’re in an existing home and the land lord wants to change the rent be sure to compare the rate rise year on year. Is it more than the national average? Is it reasonable? Highlight your good rental history, prompt payment, and any maintenance or improvements you've contributed to the property. Landlords may be willing to negotiate, especially if they value reliable tenants. If your existing landlord won’t negotiate and you feel the increase is extraordinary, then you can take it to the tenancy tribunal for review. Must apply within 30 days of receiving rent increase notice.
Downsize or Consider Roommates: If your current housing costs are becoming burdensome, consider downsizing to a smaller, more affordable place. Alternatively, you can explore the option of finding roommates to share the cost of rent/mortgage and utilities. Sharing expenses can significantly reduce your financial burden while allowing you to maintain a suitable living situation. For example, a client living in Brisbane has observed her mortgage takes up more than 50% of her take home pay. So she’s making plans to sell the home, cash out the equity she has built in her home and downsize to a more affordable home on the Sunshine Coast where she expects her mortgage will be a more affordable 15% of her take home pay. This solution won’t be available to everyone but it’s worth exploring .
Increase Income: Explore opportunities to increase your income, such as taking on a part-time job, freelancing, or starting a side business. Increasing your overall income can provide you with more financial flexibility to afford the rising housing costs.
Refinance or Renegotiate Mortgage Terms: If you have a mortgage, consider refinancing if interest rates have dropped significantly since you obtained the loan. Refinancing can help you secure a lower interest rate, resulting in reduced monthly mortgage payments. Alternatively, contact your mortgage lender to discuss possible loan modifications or renegotiations that could make your mortgage more affordable. A rate reduction of 1% on a $600,000 home loan could provide relief of $6,000/year
Seek Professional Advice: If you're struggling to keep up with housing costs, consider consulting with a financial advisor or financial counsellor. They can provide guidance and help you explore options specific to your situation, such as loan modifications, debt consolidation, or refinancing.
Explore Affordable Housing Options: Research affordable housing programs, government subsidies, or rental assistance programs that may be available in your area. These programs can help lower your housing costs and make it more affordable to keep a roof over your head. Look into subsidised housing or shared housing arrangements. For example, I’m working with a single mother who is renting and the rent just went up by $100/week. Previously she would never have consider applying for assistance from Centrelink. Now, however, she’s looking to see if she’s eligible for Centrelink benefits like rent assistance because the budget is getting tight and given her circumstances she’s got a good chance of being successful.
Remember, it's crucial to plan ahead, be proactive, and seek assistance when needed. Keeping a roof over your head while managing rising costs requires careful financial management, exploring available resources, and making informed decisions about your housing situation.