In Australia we are taught from an early age there are few safer investments than residential property: bricks and mortar are the foundation of the 'Great Australian Dream'. We place housing above religion, sport, kangaroos and barbecues. For all but the wealthiest, a home is by far the largest investment people will ever make.
This obsession has inflated house prices to stratospheric levels, increasingly separated from fundamentals such as rents, incomes, construction costs, interest rates, economic and population growth, and inflation. Young adults and the unfortunate (divorced, sick, unemployed or underemployed) are excluded as losers and denied a place at the table.
The foolish inequity of all this has prompted wide debate and a number of government inquiries into housing affordability. Nothing has changed: interrupting the flow of gravy to landholders large and small is considered political suicide.
It is regularly claimed housing is affordable because nominal mortgage interest rates are low, having significantly declined from the peak of 17 percent in 1990. As I demonstrated recently, the rise in housing prices, size of new mortgages and decline in wage growth easily overwhelm any benefit from lower interest rates.
Compared to the historical record, young and aspiring first home buyers face the highest deposit-to-income ratios, the highest debt repayments relative to income over the lifetime of the mortgage and very high debt service ratios.
Over 50 percent of first home buyers today rely on parental assistance, as guarantors, or through co-borrowing, personal loans, gifting or mortgage repayments. It is an absolute indictment of present economic settings that this scale of parental involvement is needed to help young adults enter the housing market.
A sophisticated media narrative frames young people as lazy and inept, rather than victims of a sorely biased system. They recently endured a public whipping for allegedly indulging in weekend breakfast out -- smashed avocado on toast, would you believe -- rather than saving every cent toward a deposit.
Young adults and the unfortunate (divorced, sick, unemployed or underemployed) are excluded as losers and denied a place at the table.
The hysteria is levered by the baby boomer generation, who enjoyed a windfall not of their making. Advantageous financial circumstances allowed them to easily enter the housing market, pay down the mortgage with falling interest rates and strongly rising nominal wage growth; then gain further from the tremendous escalation in housing prices from 1996 onward. Their experience proves home ownership is both easy and more rewarding than paid work.
Rather than deal with the obvious facts, namely that the young are faced with the highest housing prices in history, the lowest nominal wage growth since WWII, interest rates that cannot be lowered much further and a government openly hostile to their interests, the entitled prefer to believe they had it hard when clearly the reverse is true.
Housing can be made more affordable in three ways: declining interest rates, rising wage growth and falling housing prices. At this point, the only practical path forward is to reduce housing prices. Of course nothing will be done about this, especially given property is the preferred investment class of federal politicians.
The most recent appalling government report on home ownership (which Lindsay David and I testified at) was a miserable 45 pages short, made no recommendations and was a waste of time -- as predicted by our submission. Government is paralyzed, terrified of angering landowners who would vote for the rest of their lives against anyone who fiddles with their unearned and undeserved capital gains.
At the very least, 'home renting' could be granted through stronger tenancy regulation as practiced throughout Western Europe and Scandinavia. Germany is the strictest, with tenants often living in the same dwelling all their lives with superior protections. The home ownership rate is only 40 percent in Germany, proving such a system can coexist in harmony with property investment.
Over the past 20 years, federal and state governments have maintained and even implemented policies to inflate housing prices.
The young and poor need not submit to debt serfdom with jumbo mortgages but could instead rent securely. Unfortunately, this option is denied by state governments -- entirely captured by rent-seekers and property sector lobbyists -- to ensure Australia retains the worst tenancy laws in the West. Treating tenants like vermin is another form of subsidy that accrues to landholders.
Over the past 20 years, federal and state governments have maintained and even implemented policies to inflate housing prices, sanctioned under the pretext of assisting affordability, while in reality achieving the opposite. The public tolerated this because the benefits have flowed to homeowners and investors. The elevation of home ownership to religious status and the consensus that renting is 'dead money' reinforce this outcome.
Despite government pretexts of improving housing affordability, there is a chasm between rhetoric and outcomes. The role of government at all levels, past and present, has been to deliberately act to further inflate housing prices, corrupted by the reemergence of the rapacious FIRE (finance, insurance and real estate) sector since the late 1960s. Society is screwing over the young while telling them it is their fault.
In March 2017, HuffPost Australia is running a housing affordability blog series. We will be sharing the opinions of everyone from senior government ministers to first-time buyers trying to get into the housing market. If you'd like to have your say on the issue, please send a 500-800 word blog to email@example.com.