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An Uncomfortable thought on housing

by Mark Ouliaris (Blueprint Institute Senior Researcher)

Homeownership is not a one-size-fits all solution to retirement, wealth creation, nor the achievement of the ‘Australian dream’, and our obsession with it has stifled the reform that we need to make housing more affordable.

Consider these descriptions of Australia’s housing market:

A “perfect storm of economic and social factors… are putting huge strains on housing affordability.” 

A “deadly combination of flattening income and increasing housing prices.”

Housing affordability crisis creates spiral of disadvantage.”

These could easily have been written during the last year, but they are actually from 2016. The current concern over a a modest fall in prices due to rising interest rates only obscures the reality that housing has grown vastly more unaffordable in the last decade. Even the most pessimistic predictions of a 20-25% decline in house prices during this interest rate tightening cycle still leaves valuations roughly at a pre-pandemic level. Meanwhile, real wages have declined to levels last seen in 2013.

If 2016 qualified as an affordability crisis, today’s housing market is an unmitigated disaster. 

Housing affordability has been a problem in Australia for a long time, through several economic cycles, governments, and policy frameworks. The intractability and severity of the problem should make it clear that there are fundamental issues with Australia’s housing policy, and even the ‘Australian Dream’ of homeownership.

We expect too much of homeownership. Besides a way to obtain a safe and affordable place to live, we also envision homeownership as a wealth-building strategy, a way to secure a comfortable retirement, and even a means to confer a sense of responsibility and a stake in community and country. 

Australian housing policy reflects this muddled mess of priorities. 

We ostensibly want affordable housing. But we also want homeownership to convey financial wealth. So we structure our tax system—with negative gearing and capital gains exemptions—to preferentially funnel capital into housing. Demand for housing then naturally rises, along with house prices, and housing becomes unaffordable. The two goals are in fundamental tension with each other.

The core of the problem is the obsessive focus on homeownership as a good in and of itself. 

This explains why every policy intervention in the housing market, aimed at increasing housing affordability, just further inflates valuations. For instance, during this past election cycle, the Coalition proposed to address affordability by funnelling superannuation funds into an already overheated property market. Meanwhile, Labor’s solution—set to enter Parliament some time after October’s Budget—entails the government pitching in to help 10,000 lucky people buy into an already unaffordable market—pushing up prices for everyone else. Neither party offered substantive aid to renters, a policy that could actually help affordability by reducing demand for home purchases.

Homeownership has worked its magic for many people, including entire generations in the past. But today, there are unintended consequences of an unaffordable housing market that is ultimately in nobody’s best interest—not even homeowners. 

The dramatic ascent of house prices has worsened and entrenched wealth inequality, fracturing society both on an intergenerational divide and within generations, between homeowners and renters. Unaffordable housing restricts access to opportunity by limiting people’s ability to move for better employment—sapping productivity and economic growth. And, in the context of rising interest rates and cost-of-living pressures, the widespread practice of lying on mortgage applications to overstate earnings and minimise expenses, often encouraged by brokers, risks becoming a ticking time bomb that holds the wider economy hostage. 

The anticipated fall in house prices during the next two years offers an opportunity to fundamentally rethink housing policy. 

Band-aid solutions that attempt to subsidise homeownership and skirt the core of the problem will not suffice. Rational housing policy will require a realistic appraisal and prioritisation of our goals. Homes should be for living in. That is it. Housing policy should not be a substitute for an adequate retirement safety net, nor a scheme to build wealth, nor a vehicle to encourage an ‘ownership’ society. Our primary goal should not be maximising homeownership, but rather ensuring that affordable housing is accessible to all—regardless of whether you rent or buy.

Mark Ouliaris is the Senior Researcher at Blueprint Institute and has experience across think tanks and the private sector in areas of economics, international relations, and energy policy.

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