The ability to own your home with a backyard and a quarter acre block has been at the core of the Australian dream for decades. Such a promise has lured many people to migrate to Australia and is a major contributing factor to why Australia is one of if not the most liveable country in the world. However, for decades now that dream has been on the decline and is now for some young people a pipe dream.
Since the 90’s the real median house price has increased by 412%, which has blocked younger people from accessing the market. This is illustrated by the homeownership rate for people between the ages of 30-35 being 37% in 2021, compared to the 53% for the same age bracket in 1986. Young people and families are also now spending over 30% more on housing costs (mortgage, rent, etc.). Such disparities in property ownership amongst younger and older people is widening economic inequality in this country, especially intergenerational inequities, as whilst the value of property already owned by older folk skyrockets, the young and working class are left out in the cold.
However, whilst this may not seem like an issue that has a large effect on Australia’s macroeconomic health. However, young people not being able to access housing, and most of those who do being forced into outer suburban areas has had a significant impact on economic productivity as for the most part younger people work in inner and middle-ring suburbs. This is illustrated by the fact that Australia’s productivity has decreased from 35% to 15% from 2004-to 2021. Additionally, national household debt has increased from 70% to 185% from 1990 to 2021, a major threat to Australia’s economic stability according to 73% of economists polled in a UNSW study.
As you have read above, the inability for people to access affordable housing and attain home ownership is a major threat to Australia’s macroeconomic security and prosperity and a major economic injustice to our younger generations, so you would have thought our governments both state and federal would be scrambling to fix it…. well, no, not if they want to win an election.
Economically speaking, making housing more affordable is a somewhat simple yet two-fold economic solution: demand for residential property must be driven down and limited and the supply of residential housing must be increased.
To drive down demand, governments would need to make it more costly and difficult for individuals, mostly older people to purchase property as an investment as well as constraining foreign investment in our housing market even further. Whilst, limiting foreign investment in residential property market is a widely popular and politically easy reform to achieve, making it more difficult for Australian citizens to purchase investment property, via abolishing negative gearing and decreasing the capital gains tax exemption for property investors is an extremely unpopular and politically problematic policy path to pursue. The unpopularity and lack of community desire for such reforms was brutally revealed to Bill Shorten and the Labor Party found in the 2019 election, where their shock election defeat was attributed in large part to these policies alienating older voters. So, three years on from that scarring loss, the Labor Party have dumped the policies and the Coalition won’t touch them with a ten-foot pole, thus there is no realistic hope or political viability of enacting these reforms.
The other side of this equation is the need to boost the supply of residential housing particularly in middle and inner-ring suburbs. Whilst space and residential land is finite in these such areas of our major cities, planning regulations surrounding medium density housing (townhouses, units, etc.) need to be liberalized in order to increase the housing supply. However, yet again the liberalization of such regulations is an extremely difficult prospect politically, up to 80% of residents in such suburbs are in some way opposed to the consequences of increased housing density in residential areas, some of the main reasons cited for their opposition as per a Grattan Institute study include increased traffic congestion (85%), busier public transport (60%), and loss of amenity (45%).
However, at the moment both our state and federal governments are enacting and perpetuating policies that are economically nonsensical. Our federal government for years now has been enacting legislation such as the ‘First Home Super Saver Scheme’ (2017), which allows eligible first home buyers to withdraw up to $50,000 from their superannuation funds to fund their deposits, and various state governments have been giving out grants to first home buyers. Although, this may seem right to assist first home buyers in such a way, all it does is along with extremely low interest rates is inflate an already expensive housing market, increasing competition whilst not increasing the supply of residential housing, therefore driving up the unaffordability of housing even further.
The housing affordability crisis is not going away in Australia and will only continue to compound in its severity the more time governments don’t address it. And, whilst as illustrated above, enacting meaningful reform to improve housing affordability is politically toxic as well as being very complex since it requires the multilateral action from federal, state, and local government, it is a problem that must be addressed soon as the consequences for our future economic prosperity, if not addressed are extremely problematic.
Therefore, we must have leaders and governments that have the courage to speak honestly with the electorate about the crucial necessity of reform. This will require creativity and good-planning to allay the legitimate concerns of the community as well as strong leadership to corral various levels of government to play their role in fixing such an issue.
- 25 years of housing trends: Australian housing market trends report | Aussie
- Home Ownership of Housing Tenure 2021 | Australian Institute of Health and Wellbeing
- Housing Affordability 2021 | Australian Institute of Health and Wellbeing | Retrieved 9th of March
- MacLennan D., Long J., et al. (2021) | Housing: Taming the elephant in the economy | University of New South Wales
- A new report has revealed a looming catastrophe for homeowners as debt levels rise (June 2021) | Turner Cohen A. | News.com.au
- Labor loss to deliver a positive property ‘shock’ (May 2019) | Cranston M. | Australian Financial Review
- Labor quietly does a U-turn and shifts gears to go right on tax and housing (July 2021) | Napier-Raman K. | Crikey.com.au
- Daley J., Coates B. (2018) | Housing Affordability: Reimagining the Australian Dream | Grattan Institute