By EMMA DAWSON
Owning one’s own home has long been understood as the Great Australian Dream.
From the early days of federation, working and middle-class Australians were far more likely to own the home in which they live than were their counterparts in Britain or the USA. In the years after World War II, home ownership began to be regarded as a key measure of security and success for ordinary Australians, as policy makers made housing security and affordability a core element of the post-war reconstruction.
To this day, an assumption of home ownership among the majority of Australian families underpins the Australian social contract: wages, social security payments and the retirement income system all rely, to a greater or lesser extent, on widespread home ownership.
Yet, in 2022, secure housing in Australia is increasingly out of reach for a growing proportion of the population — arguably more so than in any comparable country. In fact, Australia is now behind the United Kingdom when it comes to outright home-ownership, and has fallen behind the US for owner-occupied mortgaged households. The proportion of households living in a home they own outright or with a mortgage in Australia is a full 13% below the OECD average, and falling.
The difficulty of accessing the Australian housing market today is the subject of much political and public discussion. Yet the national debate about declining affordability for first home buyers too often obscures the larger issue of a lack of housing security throughout all segments of the Australian populace: for example, it is not widely understood that, on average across the life course, renters spend a larger proportion of their income on housing than do homeowners.
Similarly, recent public debate that positions home ownership primarily as a generational divide ignores the significant disparities in wealth and housing security within generations. That is, while the popular narrative holds that ‘baby boomers’ are cashed-up home owners with multiple investment properties, and are locking younger generations out of home-ownership, the evidence shows that one in four older Australians lives in permanent income poverty, and that this is primarily due to the fact that they do not own their own home and must pay private rental costs.
What is true, and should be of utmost concern to policy makers, is that the proportion of Australians who will never own a home is increasing, with dire consequences for Australia’s future prosperity and social cohesion. Younger generations are entering the home-ownership market later than ever, if at all. The long-term impact of this trend is already apparent: the proportion of homeowners aged 55–64 years still owing money on mortgages has tripled from 14% to 47% in the last 25 years.
In a poll conducted in mid-2021, two thirds of Australians responded that they thought home ownership was now out of reach for young people. At the same time, many economists were arguing that mortgage affordability was better than ever before, and that first time buyers just needed to grasp the opportunity of low interest rates to get on to the property gravy-train.
With interest rates now on a steep incline, this blithe advice looks even more callous, but even when money was virtually free to borrow, such an analysis failed to recognise both the lifetime cost of servicing a mortgage as a proportion of income, and the increasingly prohibitive price of entering the market with a secure deposit of 20 percent of purchase price. When the increases in housing costs are outstripping people’s ability to save by several thousand dollars each month, it is becoming impossible for young people to enter the market without assistance from ‘the bank of mum and dad’. This has significant consequences for intergenerational inequality and social mobility.
In the recent federal election, neither major party wanted to talk much about housing affordability and the impact of successive government policies on the ability of ordinary working people to afford a secure and safe home. In the last week of the campaign the Coalition finally buckled to extremists in its ranks and announced an ill-conceived and widely criticised plan to allow first home-buyers to dip, once again, into their superannuation to build a deposit. Again, the policy was so poorly designed it would have benefitted only those already wealthy enough to have significant superannuation balances and matched savings outside those retirement income accounts.
Labor’s policies, notably its social housing fund and shared equity model for first home buyers, were more thoughtful and clearly targeted at those most in need, while the Greens took a policy to the election of building ‘a million affordable homes’ — although exactly where these would be built is unclear, given their party’s tendency to oppose medium density housing builds in the inner suburbs of capital cities in which they sit on local councils.
What none of our political leaders wanted to talk about was the demand-side policies that have driven house prices in Australia to among the least affordable in the developed world. They have done so by displacing the right to a home from the centre of policy-making in favour of creating a speculative investment market for those already in possession of capital.
After Labor’s scarring loss at the 2019 election, the party decided to jettison its years-long commitment to reducing those tax concessions, a regrettable decision that has arguably left the new Labor Government little room to move on what is now an economic and social crisis. Despite the political calculation that led to such a timid policy capitulation, the fact is, government decisions to tax wages from working people much more heavily than unearned incomes from rising property prices, and concessions granted to existing property owners, have, over the last 25 years, fuelled an exceptional and damaging explosion in property prices. Until recently, this was concentrated in Australia’s capital cities, but the impact of COVID-19 and the ensuing changes in workplace practice, asset prices and lifestyle have seen the escalation of housing prices extend to our regional cities and towns.
At the same time as government policies have excessively stimulated property prices, those same policy makers have failed to implement housing models alternative to private ownership that could provide security for tenants. Current public policy recognises only private ownership as the pathway to housing security; indeed, leading economists and policy advisers will defend soaring property prices on the basis that they increase household wealth and therefore the security of the population. This argument ignores the distributional effects of tax incentives that are concentrating property wealth, and therefore that model of economic security, in ever fewer hands.
The argument that property wealth can be seen as a productive asset because it provides security to the owner-occupier is spurious. In fact, housing as an investment offers a static return and, more fundamentally, housing security need not rest on ownership: the provision of secure and affordable homes for tenants, both in the private rental market and through public and community housing, is a source of housing security in many comparable OECD nations.
The unsustainable growth in house prices has enormous ramifications for Australia’s prosperity, social cohesion, security and sustainable growth. The opportunity costs for investment in more productive and innovative assets are enormous, as is the restriction on social mobility imposed on too many of our citizens due to the lack of a secure home.
Current prejudices in government policy are hampering civil society efforts to reverse this damaging trajectory. There is an open hostility on the Right side of politics to social housing — both public housing provided by state authorities, and community housing provided by not-for-profits. But there is also a failure on both sides to understand the interactions of affordable build-to-rent and rent-to-buy developments with the rest of the market. These appear to be based on a determination to protect the property values of existing home-owners and investors at the expense of those experiencing housing insecurity.
Since the election in May, the rental crisis in Australia’s regional cities has spread to the capitals, and there is now a severe shortage of affordable rental properties across the country — not just for those traditionally locked out, such as people on income support, but for an increasing number of low and middle income families, including those of key workers such as nurses, teachers and care workers.
Put simply, housing costs and lack of availability have now reached a crisis point for too many Australians, while housing has become a lucrative financial resource for increasingly fewer others.
In order to reset our public conversation around housing affordability, it is necessary to reclaim the idea of housing from the extreme financialisation that has positioned it almost entirely as a financial asset to one that understands the role of a home in a secure, enjoyable and prosperous life.
If we are to end the situation in which housing is a means of building wealth for the few, rather than providing a secure home for all, we could start by recognising the following key principles.
Shelter is a fundamental human right. Access to a secure, affordable, accessible and decent home should be the first principle underpinning any policy related to housing in a wealthy country such as Australia.
Access to good quality, secure housing is well known to play a significant role in determining health and wellbeing — both physical and mental. A lack of housing in the right place, of the right quality or available for secure tenure periods, has corrosive effects on individuals and families.
High house prices and rents increase household debt, reduce spending capacity, and increase risk throughout the financial system.
Beyond individual impacts, social cohesion is detrimentally affected by property price distortions, which increase wealth inequality between and within generations.
Hot local property markets can lead to low and middle-income workers, including essential workers, unable to live close to their place of work, producing inefficient labour market outcomes.
Money held in the housing market does very little to stimulate our flagging economy, which has been in a period of low and, in some years, even negative, productivity investments.
Australia is not unique in facing a housing affordability crisis — around the world many countries are seeing the cost of rent and home ownership increase dramatically, with many of the same drivers and consequences. But this situation is not inevitable: several other countries have chosen deliberate policy paths to reduce the social and economic problems produced by spiralling housing costs.
So, while housing affordability is not only an Australian problem, Australia is facing a unique set of challenges, and will require a unique set of policy solutions. With a new federal government at least willing to face the problem of housing insecurity outside the owner-class, we may have some hope that in future years a suite of measures to provide more housing at the lower end of the market will relieve some pressure on renters and those previously locked out of home ownership. In order to reverse the extreme financialisation of the housing market, though, much more will be needed than the fairly modest programs Labor took to the 2022 election.
There are solutions to Australia’s housing crisis. They aren’t simple, and they aren’t, no matter how much conservative economists protest, just about creating more supply. The tax settings that encourage Australians with means to park their money in property and push up the price of land well beyond the value of its natural utility are damaging our social cohesion, destroying social mobility and holding back our economic prosperity.
The measures needed to fix our broken housing ‘market’ will take time and political courage, and the necessary solutions will not be realised until policy makers accept the evidence that is staring them in the face: evidence of where we have gone wrong, who is suffering the consequences, and what will work to ensure that all Australians have access to a secure, safe and comfortable home.
Emma Dawson is Executive Director of Per Capita. This is an edited extract of Per Capita’s recent report Housing Affordability in Australia: tackling a wicked problem, produced in partnership with the V&F Housing Enterprise Foundation. The report can be found at www.percapita.org.au