Housing affordability isn’t a particularly ‘sexy’ topic, nor does it rile the sort of passion among young people as marriage equality or climate change. But a growing number of respected economists think young Australians “should be angrier” about the unfair economic policies that are stacked against them. One even suggested that youth should be “rioting in the streets” about the cost of housing.
Housing affordability is one of the most important economic issues affecting our generation. But why should young people care about it, and what does that mean for this election?
House prices spiralling out of reach
It has never been more expensive to buy a home in Australia. A recent study found that Sydney is the second most expensive city in the world to buy a home. Melbourne ranked fourth most expensive. With the median house price in Sydney teetering around $1 million, after growing an extraordinary $200,000 last year, the great Australian dream of home ownership is rapidly spiralling out of reach of young Australians. Meanwhile, more than half of all young renters are experiencing rental stress.
Commentators of all political stripes have highlighted the crisis of housing affordability. The Governor of the Reserve Bank of Australia, Glenn Stevens, described Sydney house prices as “crazy”. Liberal MP John Alexander remarked that sky-rocketing house prices risked Australia becoming a “nation of imprisoned tenant serfs”. Even Alan Jones said he “despaired” for young Australians trying to buy their own home.
Sadly, the data backs up these sensational remarks. Buying a home has never been more expensive relative to average incomes. Sydney homes now cost 12-times the median income. In 1975 this figures was 4-times.
First home buyer activity is also at record lows, as young people are squeezed out of the market by investors and older buyers. The proportion of young people who own their own home has rapidly declined since the 1980s – today only 47 per cent of people under 35 own their home, down from 61 per cent in 1981.
Meanwhile, the number of investors in the housing market is close to all-time highs. In 1985, property investors represented 13 per cent of new mortgage lending. Today that figure is over 50 per cent. And these housing investors are overwhelmingly the highest income-earners in the country.
What does this mean for young people?
For many young people, these trends may permanently lock them out of the housing market. 'Generation Rent' may remain renters for life. Given Australia’s poor rental rights compared to other Western countries, this isn’t a particularly attractive prospect for our generation. Lifelong renting denies young people access to the many benefits of home ownership (both economic and social), and they are at risk of poverty when they eventually retire.
For young people who are able to save for a deposit, it will take them longer to do so than ever before. It now takes over nine years for home buyers in Sydney to save for a deposit, versus four years in 1986. And for those who are fortunate enough to eventually buy a home, they are likely to be burdened with more debt than any previous generation. Recent home buyers are loading up with so much debt that Australian households are now the most indebted in the OECD.
All of this adds up to a dire outlook for young people. In fact, on the current trajectory, our generation will be less wealthy than our parents. This would be the first time since the Second World War that the standard of living dropped from one generation to the next.
This bodes poorly for the Australian ‘fair go’, and will act as a barrier to social mobility. Young Australians who aren’t fortunate enough to have their parents “shell out” to buy them a home, or who are unlikely to inherit housing wealth, will increasingly struggle to buy a home. This will entrench social and class divides in Australia.
The housing affordability crisis is compounded by a range of other economic trends which disproportionately affect young people, including the casualisation of the workforce, rising university fees, and mounting student debt.
The high cost of housing also poses a risk to the Australian economy. Economists argue about whether or not we are in a property bubble. But if a serious price collapse were to occur, the impact on the economy (and young people) would be severe.
Why is housing so unaffordable?
Tax policies such as negative gearing and the capital gains tax (CGT) discounts are major culprits. Negative gearing allows property investors to deduct their property expenses against their regular wage income. The discount to CGT reduces the amount of tax that investors pay on their profits after selling investment properties.
These policies unfairly advantage investors over first home buyers, who are typically competing for the same types of properties. Negative gearing encourages debt-fuelled, speculative investment which pushes up prices and squeezes out first home buyers.
In a further blow to equality, the beneficiaries of negative gearing and CGT concessions are overwhelmingly the wealthiest Australians. Despite all the talk of mums, dads, and tradies using negative gearing to ‘just get ahead’, the vast majority of the dollars flow to the most well-off.
The total cost to the budget of negative gearing and CGT is around $10 billion a year. Respected economist Saul Eslake estimates that this is more than the total amount the Commonwealth spends on higher education.
While it is certainly true that record-low interest rates and a lack of housing supply have also exacerbated the growth in house prices, reforms to tax policy are a simple fix that shouldn’t be ignored.
What can be done about it?
Australia must have a serious national conversation about the long term consequences of falling rates of home ownership. Reforms to negative gearing and CGT are an obvious part of this conversation.
Innovative alternate policies should also be explored. For example, Share Equity schemes (where a home buyer jointly purchases a home with the government) have been trialled in Western Australia. These schemes have shown initial success in assisting Indigenous Australians enter the property market.
What can young people do to influence policy?
The election is a great opportunity to make your voice heard. The major parties have divergent views on housing policy.
The Liberals’ advice to young first home buyer’s has ranged from “get a good job that pays good money”, to ‘get wealthy parents to buy you a house’. The Liberal party has failed to propose any meaningful policy reform in the area of housing this election campaign. The Liberals have historically emphasised the increase of housing supply as the answer to affordability issues.
Labor has bravely (and unexpectedly) made housing affordability a key feature of the campaign by proposing to restrict negative gearing to newly developed properties and reducing the discount to CGT. The strength of this policy is that it provides an incentive for investment in the construction of new housing, which will increase supply.
The Greens go slightly further than Labor by proposing the complete removal of negative gearing and CGT concessions for all new purchases. They also propose a strengthening of renter’s rights, and additional funding for community housing.
Maintain the rage
The issue of housing affordability is fundamentally about fairness, intergenerational equity, and social mobility. Fixes to the current housing crisis are obvious, but have been deliberately ignored by politicians in order to pander to older, wealthier, homeowners.
As a young person, you should be fuming about the failure of governments of both stripes to fix this enormous issue. Maintain the rage, and make your voice heard this election.
Benjamin Ward is a strategy consultant who has worked in Sydney and New York. He is building a start-up that aims to improve housing affordability for young and lower-income buyers.
