Home ownership in Australia is a central pillar of the Australian Dream, but it is one that is increasingly unattainable for first home buyers as housing affordability spirals out of control.
While property prices are on the up and up, the CEOs of Westpac and NAB have been speaking openly about the housing affordability crisis, with Westpac CEO Peter King telling Parliament that it it was ‘pretty stretched’.
A new Parliamentary Inquiry into housing affordability and supply in Australia will close submissions today, with Liberal MP Jason Falinski chairing.
Leading economist Saul Eslake is one of the figures who has already written a submission to the inquiry.
As a former ANZ chief economist and a former Treasury staffer, few Australians know more about the economics of real estate in Australia, and Australian Broker spoke to him directly about his submission, and where how the housing market is failing first home buyers.
“Housing policy in Australia has been failing for 50 years,” explained Eslake. “If, by the objectives of housing policy you mean that governments want to preserve the high levels of home ownership that the baby boomer generation has enjoyed, and that those who aren’t able to aspire to home ownership don’t have to live with high levels of rental stress.”
“I would argue that the two problems are interrelated. We’ve seen a steady decline in the home ownership rate since it peaked at 72% in 1956, and especially since the early 90s, to the point where the home ownership rate at the 2016 census was at the lowest it had been since 1954.”
“Among people under 40, it had fallen to the lowest it had been since 1947. I suspect that when the results of 2021 census, which we not recently completed, are released next year, they will show a yet further decline in the home ownership rate over the last five years.”
“What we’ve got is home ownership increasingly concentrated among those 50 and over, a significant cohort of people in their 20s and 30s who, in previous generations, would have been able to buy their own homes, but who instead aren’t able to.”
“They are therefore forced to rent, and for longer – in some cases for the rest of their lives. They have sufficient incomes to be able to rent in the private sector, but in so doing, they push up rents, making life even more difficult for the cohort of Australians who, both in previous generations and in this one, have never had any realistic aspirations to home ownership.”
Australia’s housing affordability crisis, according to Eslake, stems from the traditional balance of supply and demand.
“Because governments since the 1980s have gradually stepped away from the provision of social housing, there simply isn’t enough affordable social housing now to meet anything like the demand for it from people who would never have had any realistic aspiration of acquiring their own home,” said Eslake.
“Beginning in 1964 with the first home savings grant, the focus of government policy at Federal, state and local levels, and under governments of both political persuasions, has shifted away from boosting supply towards inflating demand and constraining supply.”
“Every time house prices look like falling, government stump up with ever-increasing and more generously-defined grants to would-be first home buyers, which do nothing to increase the home ownership rate but inflate the price of existing houses and end up in the pocket of either vendors or in the profit margins of builders and land developers.”
“Through doing nothing about the tax preferences for investors – indeed, by effectively cutting capital gains tax in 1999, making them more generous – Australia has something like 15% of all tax payers being landlords, which is one of the highest rates in the world.”
“Defenders of tax preferences for property investors say that it helps increase the supply of rental housing, what it actually does – because investors crowd would-be first home buyers out of the market because their tax preferences make it easier for them to service debt.”
“What that does it create demand for rental housing, rather than necessarily increasing the supply of it, especially when you factor in that a significant amount of investor purchases are for existing properties rather than new ones.”
“At the same time, state and local governments, particularly in New South Wales, have made it harder, more expensive and more time-consuming to do brownfield developments while governments around the country have in effect forced those taxes and charges onto would-be buyers because of the increased house prices.”
“We’ve ended up in a bit of a mess. The thing that I can’t get away from is that, for all the crocodile tears from politicians shed about the difficulties that would-be first home buyers face in getting their first steps on the property ladder, they keep doing things that make that hard.”
According to Eslake, there is little political will to solve the housing affordability crisis because, in Australia, home owners vastly outnumber potential first home buyers.
“Why do they do that?” said Eslake. “I think it’s because, deep down, they know that in any given year, there’ll be around 100,000 people who succeed in becoming first home buyers.”
“They, up until the moment that they do succeed, want the government to do the things that constrain house prices, but when they do succeed, they join the 11 million Australians who own at least one property, and within that, the at least 2 million who own two or more properties.”
“The last thing that those 11 million (and especially that 2 million) want the government to do is anything that slows down or halts the rate of property price inflation.”
“On the one hand, maybe 100,000 or so people who want the government to do things that stop the inflation of property prices, and on the other hand, 11 million that who want the government to keep property prices going higher.”
“Even the dumbest of our politicians can do that math, as the Americans say, and ultimately they do it every time they think about these issues.”
