APPENDIX 1 HOUSING COST MEASURES


INTRODUCTION

Housing costs are often the largest regular expense to be met out of a household's income. Housing cost measures are of key policy and research interest in assessing the affordability of different forms of housing, and changes in affordability over time. The amount a household spends on its housing costs directly influences the amount of income it has available to meet its other requirements, for both consumption and saving.

The measures of housing costs included in this publication are outlays made by household members to provide for their own shelter. There are limitations comparing housing costs across different tenure types, particularly between owner occupier households and renter households. Rent payments represent the consumption of a shelter service. Mortgage repayments, on the other hand, comprise both the consumption of a shelter service (represented by the interest component) and a savings element through the acquisition of an asset over time (represented by the repayment of principal).

The housing cost measure used in this publication includes rent payments, rate payments (general and water) and mortgage or unsecured loan payments (if the initial purpose of the loan was primarily to purchase, build, add to, or alter the dwelling). It does not include body corporate fees, nor take into account refunds from a business / person outside of the household.


OWNERS

The ABS has taken a number of steps to improve the coverage, quality and usefulness of data for analyses of the housing costs of home owners.

In 2003-04 the ABS commenced collecting extra information in the SIH:

• loan repayments were split into an interest component and a repayment of principal component
• where a loan had multiple purposes, details of all purposes were collected, so repayments could be allocated to each purpose, in line with the percentage split of the original loan amount by purpose
• where a payment was refunded by a business or someone outside the household, the amount of the refund was collected
• information on body corporate payments was collected.

Interest and principal components

In 2007-08 interest accounted for 66% of total mortgage repayments for owners with a mortgage. For first home buyers and changeover buyers with a mortgage (households that had purchased their home in the three years prior to interview), interest on the loan accounted for 72% and 69% of total mortgage repayments respectively. This is because a greater proportion of the repayment is typically applied to interest at the beginning of a loan amortisation schedule, while a greater proportion is applied to principal at the end.

A1 Interest and principal components of loan repayments, 2007-08
		First home buyers with a mortgage	Changeover buyers with a mortgage	All owners with a mortgage
Mortgage repayments ($ per week)
	Interest	347	320	229
	Principal	134	144	121
	Total mortgage repayments	481	464	350
Mortgage repayments (%)
	Interest	72	69	66
	Principal	28	31	35
	Total mortgage repayments	100	100	100

Proportion of loan used for housing purposes

The housing costs reported in this publication only include mortgage repayments if the main purpose of the loan was to buy, build, add to or alter the occupied dwelling. For example, if a loan was taken out primarily to buy a dwelling, but part of it was used to purchase a car, the entire repayment amount is included in housing costs. Similarly, if a loan is taken out primarily for other purposes, but is partly used for housing purposes, the repayments are not included in housing costs. From the 2003-04 SIH, where a loan had multiple purposes, details of all purposes were collected, so repayments could be allocated to each purpose, in accordance with the percentage split of the original loan amount by purpose.

Data from the 2007-08 SIH indicates that, if mortgage repayments were calculated in accordance with the proportion of the loan used for housing purposes, the housing related mortgage repayments of owners with a mortgage would be 2% lower than if calculated according to the main purpose of the loan.

A2 Housing related mortgage repayments, 2007-08 ($ per week)
	Main purpose	Pro-rata
Mortgage repayments to buy/build	331	321
Mortgage repayments to add/alter	14	18
Repayments on unsecured loans for housing purposes	4	4
Total housing related mortgage repayments	350	343

Repairs, maintenance and dwelling insurance

Measures of housing costs could also include other outlays that have not been collected in the 2007-08 or earlier SIHs, but which are necessary to ensure that the dwelling can continue to provide an appropriate level of housing services. These include repairs, maintenance and dwelling insurance, and are costs that tend to be incurred by owner occupier households, but not directly by renting households. Expenditure data on each of these components is collected in the Household Expenditure Survey (HES). The 2003-04 HES was conducted on a subsample of households in the 2003-04 SIH.

Data from the 2003-04 HES indicates that if these costs were added to the SIH housing cost measures, the estimates of average housing costs would increase by $39 per week for owners without a mortgage, and by $47 per week for owners with a mortgage (in 2007-08 dollars).

A3 Expenditure on repairs, maintenance and dwelling insurance(a), 2003-04 ($ per week)
		Owner without a mortgage	Owner with a mortgage
Repairs and maintenance
	Payment to contractors/materials and labour	19	23
	By occupant/materials only	8	11
	Total repairs and maintenance	27	35
Dwelling insurance		11	12
Total		39	47
(a) In 2007-08 dollars, adjusted using changes in the Consumer Price Index

From the 2009-10 SIH, outlays for repairs, maintenance and dwelling insurance will be collected in each survey cycle from the total SIH population, enabling broader measures of housing costs to be produced from the survey.


RENTERS

The ABS has taken a number of steps to improve the coverage, quality and usefulness of data for analyses of the housing costs of renter households.

Housing costs for renter households in this publication comprises rent payments plus any rates payments that were paid by the household (general and water). The measure does not take into account any refunds from a business or person outside of the household, or any Commonwealth Rent Assistance (CRA) payments received.

In 2003-04 the ABS commenced collecting extra information on the housing costs of renters, including payments for water consumption and amounts refunded by a business or someone outside the household. In 2007-08 the ABS commenced collecting information on whether persons and income units are currently in receipt of CRA and the amount that they receive.


Commonwealth Rent Assistance (CRA)

Some households renting in the private rental market are reimbursed some or all of their housing costs in the form of CRA. CRA is a non-taxable income supplement paid through Centrelink to qualifying recipients of income support payments and family tax benefit, and is paid in conjunction with that other benefit. In this publication these reimbursements are neither offset from the housing costs nor deducted from income of the principal tenant when comparing tenure types. Where one income unit within a household receives CRA and sub-lets from another household member, CRA should be deducted from the income of the recipient of this government payment and added to the income of the primary tenant. While this does not change total household income it does affect analysis of the economic wellbeing of income units within the household.

While CRA receipts were collected in the 2007-08 SIH, and used in some reporting for lower income households, the ABS is undertaking further investigation into more comprehensive use of CRA data in reporting results from this survey.


TOWARDS A MORE COMPREHENSIVE MEASURE

Ideally, a more comprehensive measure of housing costs should take into account the issues discussed above. Housing costs could then be more meaningfully compared across all tenure and landlord types. A fuller measure might also include body corporate payments.

Table 4 presents an alternative measure of housing costs to that generally included in this publication. It shows housing costs after adding body corporate payments, repairs, maintenance and dwelling insurance. It also includes housing related mortgage repayments on a pro-rata basis and excludes the interest component of mortgage repayments. Amounts refunded by a business or someone outside of the household are also excluded (but no adjustment has been made for CRA payments).

Data from the 2007-08 SIH, and the 2003-04 HES, indicates that, if this alternative measure was used, the estimates of average housing costs included in this publication would:

• increase by $40 to $73 per week for owners without a mortgage
• decrease by $78 to $306 per week for owners with a mortgage
• decrease by $3 to $264 per week for private renters
• increase by $1 to $106 per week public renters
• decrease by $13 to $203 per week for all households.

A4 An alternative measure of housing costs, 2007-08 ($ per week)
		Owner without a mortgage	Owner with a mortgage	Private renter	Public renter	All households
Rent payments		1	-	265	103	70
Rates payments
	General	17	17	-	-	12
	Water	8	9	1	2	6
	Combined	6	7	1	-	4
	Total rates	30	33	2	2	22
Mortgage repayments (pro-rata)
	Interest	1	225	-	-	79
Body corporate payments		4	3	-	-	3
Repairs and maintenance(a)
	Payment to contractors/materials and labour	19	23	1	1	15
	By occupant/materials only	8	11	3	1	8
	Total repairs and maintenance	27	35	4	2	23
Dwelling insurance(a)		11	12	-	-	9
Total weekly housing costs(b)		74	309	271	107	207
Amounts refunded by a business or someone outside of the household(c)		-1	-3	-6	-1	-3
Total weekly housing costs (less refunds)(b)		73	306	264	106	203
- nil or rounded to zero (including null cells)
(a) Data sourced from the 2003-04 HES and in 2007-08 dollars, adjusted for changes in the Consumer Price Index.
(b) Numbers may not add to total due to rounding.
(c) Does not include any adjustment for CRA payments.