Home ownership is a much-revered Australian milestone, a marker of adulthood independence and a key to economic security. However, today, the big Australian dream of owning a house in your 20s is not for all.
I used to look at soaring house prices in blinking horror; now, I don’t look. Even lockdown couldn’t slow the pace. Dwelling prices continued to skyrocket beyond our reach, further dimming the home aspirations of young Australians.
Home ownership rates have been plummeting since the 1980s in a nation that used to boast of being an egalitarian society. With the intergenerational shrinkage of stable income and a spike in debt-to-income ratio, young people and those with a modest income have been gradually locked out of the real estate market.
Consequently, many young adults are sharing rental homes or boomeranging to parental homes out of economic necessity. Home ownership is increasingly becoming hereditary; something that used to be attained is more likely to be inherited by those who come from money.
A global pandemic exacerbated matters. With closed borders and strict lockdowns, the concept of ‘home’ stretched to include work, school and all other aspects of society. The increasing significance of a well-spaced house provided a boost to an already upward-surging property market.
As a result, more of us are renting in droves and heavily sighing at the diminished prospect of ever owning a house. Perhaps a few years ago there was a time when the “stop buying smashed avocado for $19 and four coffees at $4 each” advice would inch a young person closer to a house deposit. Now, it will take us more years of sacrifice for that advice to be fruitful.
Notably though, not every young person can afford avocado toast in a hipster café.
The housing affordability crisis is mostly causing housing stress among low-income-earning youth – the real losers. High housing costs such as rent payments limit spending on other essentials – food, health care and education – and take away disposable income from many aspects of wellbeing.
But what’s causing the real estate frenzy?
Last year, house prices rose by a whopping 24% in some parts of the country.
There are multiple reasons why. First, easy borrowing and low interest or mortgage rates in a limited supply market have produced a very high demand for dwellings.
Second, investment incentives such as capital gains tax discounts and negative gearing concentrates more homes in the hands of investors and fewer in the hands of first-time owner-occupiers.
Third, the property market has been incredibly resilient to Covid-induced economic disruptions because of stay-at-home orders during protracted lockdowns and Australians investing within impermeable borders.
Together, high demand and low sells have increased competition, further fuelling asset prices. Competitive spirits and FOMO sentiments among able buyers have also pushed dwelling prices to unapologetic heights, especially in Sydney’s inner suburbs.
Why is the housing market a complex code to crack?
The answer is simple: politicians believe rising house prices produce more economic winners than losers among their voters.
Indeed, treasurer Josh Frydenberg remarked back in June that the rise is good for the economy. The federal government extended lukewarm sympathies for those who are struggling to get a foot in the property door for the first time, while merrily pointing out that many households are gaining from continued property price inflation. Therefore, price hikes are here to stay because simple solutions – such as building more houses and properly taxing property investments – are not as politically sound.
That’s the reality of things: those with power and money impact the market more than those without. That’s why the winners become fatter winners and the losers continue to lose.
What we are facing today is not an unsolvable crisis, but there is a lack of willingness to solve it among those in a position to do so.
Two things we can do: investments + elections
Economist Saul Eslake predicts the 2021 home ownership rate among Australians in their 20s and mid-30s will be lower than in the 1947 census. Demand for new houses, scarce supply and increase in vacant land prices will continue to put upward pressure on house prices in the years ahead. Prices are expected to climb, despite RBA’s interest rate corrections and a drop in housing sentiment among property professionals.
It appears younger generations are succumbing to a natural sense of fatalism and reluctantly submitting to this intergenerational theft. Very few in their 20s and early 30s are actively planning their housing futures while the majority of Australian voters believe price surges will be bad for the next generation.
There are two things we can do. The first is a personal solution, while the second entails collective action.
Investing, or making profit by putting money into financial schemes, is another way of building the deposit nest egg and/or yielding “rent” money. Although making informed investments is a tough row to hoe as understanding the market and choosing the right stocks take time, diligent research is increasingly leading millennials towards conservative investment into mutual funds (ETFs) while a handful are exploring the highly volatile but tremendously lucrative digital currency world.
The second (and somewhat blunt) solution is to make informed economic voting decisions. In order to do so, it’s important to follow political parties’ and candidates’ policy spiels to understand how their policies affect our financial futures. For instance, in the 2019 election, Liberals campaigned against the “housing tax” – a policy that the Labor party dropped after losing the election. Labor wants to reduce tax incentives for investors, which the Greens want to abolish altogether. But changes to investment policies won’t be a silver bullet.
On the other hand, it’s important to seek out what financial schemes are in place to help young people both with the housing affordability and home ownership crises. We know that first homebuyer schemes aren’t enough and despite the federal government’s home loan guarantee, houses continue to creep out of reach of first-homebuyers. All in all, the upcoming 2022 election is a crucial one to act in.
Taken together, the most important thing is to try to understand why the property market is skyrocketing and what it means for us in the short and long terms. That will help us plan and act accordingly to minimise economic stresses. It may appear to be a complex minefield, but passive acquiescence, or worse political apathy, will not help us.