Contributed by Joe Montero
House prices are soaring across Australia, increasing in some places by up to 20 percent of pre-pandemic levels. Rents have risen by more than 8 percent. Rising inflation and interest rate have not worked to change the trend.
The latest figures from the Australian Bureau of Statistics show the value of the country’s residential dwellings rose by $221.2 billion in the three months to March this year.
Australia is one of the worst nations in the world for housing affordability as shown by the graph below.
The higher cost of housing has put 40 percent of mortgage holders at risk of losing their homes, especially those who locked into fixed low interest rates and those facing massive repayments resulting form a low figure initial deposit. The era of low fixed interest rates has ended.
Banks and other lenders are sensing out more eviction notices.
The latest data from the Australian Prudential Regulation Authority (APRA), shows that of $2.2 trillion worth of loans held in March 2022, about $9 billion belonged to borrowers who are 30 to 89 days overdue on their repayments.
Add the increasing cost of living across the board, and especially on essential items like food and petrol, the pull picture of the emerging crisis facing so many Australians is clear.
There are a range of causes. Most of them date from before the pandemic. They include a lack of regulation of the landing industry, weaknesses plaguing the Australian economy leading to the housing bubble, and the existence of generous negative gearing and tax offsets. The dominance of corporate ownership of housing stock over owner occupiers attracted by the bubble and effective government subsidy of their bottom lines has magnified the problem.
Years of lack of adequate investment in both public and social housing have also been crucial factors.
Newly emerging factors are the beginnings of a return international students, migration, and a shift towards short-term tenancies, adding to inflation pushed price rises. Inner city prices are on the rise again because the inflated cost of housing is forcing many to shift from houses to flats and units because they are more affordable.
According to Dr Chris Martin, a senior research fellow at UNSW and co-author of a recent report into Covid’s impact on housing, rental supply has been in substantial decline. By 2021 it was 20 percent below the 2016-2019 average and declined further since. This has pushed up rents.
The fact is that the problem of housing affordability can only be tackled with a multipronged approach. This means far better regulation of the housing market and direct government intervention to increase the stock of both public and social housing.
In practical terms this needs much tighter regulation of landers to ensure the interests of those buying their homes are not harmed. The housing bubble must be let down through a phased reduction and removal of negative gearing and setting a ceiling on tax offsets. There is a need for rent control that sets a legal ceiling on how much a landlord can charge and greater security of tenancy.
An injection of government investment in housing stock on a sufficient scale to provide realistic alternative to the housing market together with affordable rent, would be a major catalyst to lower the cost of housing. Both public and social housing require a major boost.
The Grattan Institute has proposed a $20 billion future fund for the federal government to cover the costs of public and social housing.
This brings us to the debate on public versus social housing. Most of it is based on a misunderstanding of what one or the other is. Public housing differs in that it is directly government managed. Social housing is managed by the providers, and in the case of cooperative housing, by the cooperatives. Both cater for the disadvantaged in the main and are set at a minimum of 25 percent to 30 percent of income. A real controversy has been the injection of public/private partnerships into construction.
The benefit of a mix of approaches is that it can provide more options for all of Australia. The myth of home ownership as the measure of success and housing security must be buried. It has become a burden shackling the nation. Remove this burden and the living standard and quality of life will improve for the majority.
Affordable housing should not be relegated to charity for the most disadvantaged. This part of society does have its legitimate claims to having its needs met. This does not mean that it should be limited to this. Affordable housing should be right enjoyed by all, and the only way to guarantee this, is to think big and ensure it becomes a protected basic human right.