Australia’s housing market is facing a “triple crisis”, with one unexpected consequence of the rising home prices.
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Australia’s economy is in a “triple crisis”, prompting calls for a royal commission into the future of housing.
The reason why? Because Australia’s property market is going so well.
“When the pandemic broke out, economists warned prices were going to fall 20-25 per cent. Now we’re seeing prices rising 20-25 per cent,” Chris Leishman, professor of property and housing economics at the University of South Australia, told news.com.au.
“The fact that commentators switch their predictions so quickly shows how unstable it (the housing market) is.”
A new report, released on Tuesday, of which Prof Leishman is one of the lead researchers, found banks and the government are responsible for fuelling the frantic housing market.
The report, titled ‘Housing: Taming the Elephant in the Economy’, interviewed a panel of 87 experts and has been a year in the making.
Among its findings were that the number of homeowners under the age of 35 have halved since 1995, with most properties concentrated in the hands of 65-year-olds or older.
Prof Leishman said he is “seeing evidence that people (under 35) are giving up” on buying a house as a result.
According to the research, the home ownership is now out of reach for any Aussies under the age of 35.
Australia is one of the most indebted developed countries, beating the US, UK and Canada.
The inequality gap is widening as the housing market continues to surge.
Australia’s houses are taking on average just 32 days to sell as the economy recovers from COVID-19, news.com.au reported last week.
The housing sector is fuelling a problem threefold – creating an unstable economy, generating inequality and perhaps most surprisingly, reducing productivity.
“When the economy is booming we see housing prices accelerate. That’s the bit we already knew,” Prof Leishman said.
“(In the report) we actually ask the question – is there a feedback loop the other way?”
They indeed found a “reverse” feedback loop – expensive houses are driving young professionals from the city, into the outer suburbs or the regions to afford a house.
“As housing markets get more and more expensive, more productive workers are displaced,” Prof Leishman explained.
The report’s authors are calling for a royal commission into housing and to expand the Reserve Bank of Australia’s responsibilities to include house prices.
“We think the RBA’s remit should be wider, (it) should include the housing market,” Prof. Leishman said.
He is particularly concerned about interest rates, which are currently at record lows.
“It wouldn’t take very much for a shift in interest rates to cause a great deal of harm in the housing system,” he said.
The report wants housing stimulus packages to switch from housing to the social rental sector while the market is re-evaluated.
‘Explosion’ in house prices
The report’s lead author, Prof Duncan Maclennan, said something needs to be done.
“The recent explosion in house prices brings a fresh and troubling dynamic,” he said.
“Rampant price growth has returned to the larger cities and is now spreading to regional Australia.
“This is in part due to the pandemic-fuelled work-from-home revolution but is also because so many younger Australians can no longer afford the life they want as homeowners in the larger cities.”
‘Elephant in the room’
The report wanted to draw attention to the “elephant in the room” when it comes to buying a property.
“The housing system elephant is not only a beast now poorly grasped by policy makers, it is also one that is rampaging through the economy,” it read.