That howl of despair is the sound of housing dreams being dashed

·4-min read
<span>Photograph: Simon Bullard/AAP</span>
Photograph: Simon Bullard/AAP

Did you not hear it? That sound this week was of a generation locked out of the housing market letting out a howl of despair directed, quite rightly, towards those whose only good fortune in life was to be born earlier than they were.

The howl of those under 40s wondering where they are located within the glorious Australian dream of owning your own home.

Emoh Ruo no more.

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Oh yes, hear the cry of anguish made from those born after 1980 when they read the headline of the Australian Bureau of Statistics media release announcing the latest household wealth figures: “Record house prices continue to drive household wealth.”

A cry exacerbated when reading that the bureau’s head of finance and wealth notes that “growth in household wealth continued to be driven by residential property prices, which recorded the strongest quarterly growth on record (6.7%)”.

Well, isn’t that nice.

The ABS noted that these prices were driven by “record low interest rates, rising consumer confidence and demand being greater than the levels of housing stock on the market”. But perhaps there should have also been note of government policies designed to ensure house prices go berserk even during a global pandemic.

This week, the assistant governor of the Reserve Bank, Michele Bullock, spoke with perfect timing about house prices and Australia’s financial stability.

Related: Reserve Bank says Australia’s house prices could pose ‘risk to financial stability’

She argued that while low interest rates were a reason for strong house prices growth, so too was “the government support for housing construction, including the homebuilder scheme”.

As I noted last week, the lesson of the GFC and the pandemic is that Australian governments will do anything to avoid house prices crashing – even if that means sending them rocketing up at the expense of affordability.

All because Australia’s household wealth is utterly dependent upon land prices going up.

Take out the 30% rise in land values over the past year, and total household assets rose just 9% rather than 17%.

During the 1980s and early 1990s, land accounted for around 30% of total household assets; now it is up to 42%.

Little wonder then, as the Grattan Institute reported, that 30 years ago well over half of those aged 25-34 owned their own dwelling and now it is down to near 40%.

And so yes, household wealth is going great guns right now. If you are a property owner.

And that is a big if.

Should the relationship between home loans and prices hold, by the end of this year, Sydney and Melbourne property prices could have risen by as much as 40% in a year. And that in a year in which both cities have been in a lockdown and wages will be lucky to grow by 2%.

This is not without risk.

Michelle Bullock noted in her speech that “if rapid price rises ultimately prove to be unsustainable, they could lead to sharp declines in price and turnover in the future”.

This in turn could “amplify” any future economic downturns because “a large number of highly indebted households” could cut spending purely because of worries about their debt and a drop in house prices.

What we have seen in the past is governments deciding the solution is to pump the housing market ever more during downturns to avoid that amplification.

But that may only be putting off till tomorrow what needs to be faced now – it really is just a bet that governments can always buoy the market.

At least the ALP is thinking about the supply issue and proposes a $10bn Housing Australia Future Fund designed “to build social and affordable housing”.

With bitter irony, the fund would be managed by the Future Fund, which is chaired by Peter Costello, the treasurer who oversaw the massive surge in negative gearing and decline of housing affordability due to tax changes in the late 1990s.

The lesson of the 2019 election, alas, seems to be that housing affordability policy must never do anything to dampen housing prices.

No government wants to be tarred with slowing the growth of wealth, and thus the cycle and cries of despair are likely to continue.

  • Greg Jericho writes on economics for Guardian Australia

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