The Home Buyers Strike is one of the most interesting recent developments in Australian politics.
According to Karl Fitzgerald, a member of the tax reform group Prosper Australia, "now is not the time to buy a house".
"With young people in racked up to their eyeballs with HECS, car and credit card debt," he told New Matilda in an email, "they don’t need to enter the Great Australian Dream just as it turns into a nightmare." Politics is full of small lobby groups pushing a particular issue. The reason Prosper Australia has come to such attention with its Home Buyers Strike is because it strikes a nerve: housing affordability.
Housing affordability may not quite be at its record law levels of 2008, but it’s low and dropping. The simple maths of the matter are stark: while median household incomes in this country are a touch over $36,000, the median house price in our capital cities is $459,000. That means the middle-ranked house price is nearly 13 times the middle-ranked annual disposable income. It’s no wonder that for most young Australians, owning a home remains an impossible dream.
The response of most analysts has been to blame it all on demand and supply: specifically supply, or the lack thereof. Australia’s cities are supposedly short of new housing stock, as developers struggle with red tape and a lack of new land for greenfield estates on the urban fringe.
According to the federal government’s National Housing Supply Council’s second State of Supply Report, released in 2010, "the gap between total underlying demand and total supply is estimated to have increased by approximately 78,800 dwellings in the year to June 2009, to a cumulative shortfall of 178,400." Not enough new houses and flats are being built, and accordingly, housing supply is not keeping up with demand.
It’s even worse for low and medium-income earners. The Report says that, for the poorest two-fifths of the population, there is "a shortfall of almost 500,000 dwellings that [are]both affordable and available." As a result, rents continue to climb — though not enough to improve yields to a level high enough to stimulate more low-income housing construction.
However, as we’ve canvassed here in New Matilda before, the received wisdom about Australia’s housing shortage may not necessarily be correct. There are a number of factors which drive housing demand and supply — and the need for a roof over your head is only one of them.
In fact, the exact state of housing supply in Australia has become something of a controversial issue. As Fitzgerald points out, "a magical 46 per cent more properties were offered for sale in February than a year earlier … We have been led to believe time after time that there is nowhere to live. Suddenly, almost 50 per cent more properties have hit the market in a few weeks."
Noted property expert Steve Keen pointed out recently that while the National Housing Supply Council’s figures "are legitimate measures of a social need" they are "not a measure of the market demand for housing."
Keen observes that if limited housing supply really was a driving factor in pushing house prices up, we would expect to see the shortage reflected in more crowded houses. In fact, the people per dwelling average has been falling, even as house prices have been rising. Keen argues that house prices and population per dwelling figures show little long-term correlation.
And if we think about the number of spare bedrooms most Australian houses now have, there is a lot of sense in this analysis. New Australian houses are larger than almost any in the Western world, which has been one justification used by those claiming rising house prices are justified by the economic fundamentals. However, it also means there is a lot of spare dwelling space in all those third and fourth bedrooms of Australia’s McMansions.
There are other long-term trends which could radically change the housing supply situation. We’ve already seen the Gillard government cut back on temporary migration dramatically. Another longer-term issue is the retirement of the baby boomers, many of whom own more than one house. Because they don’t have enough superannuation, most boomers will eventually have to sell one or more of their houses to fund their retirement.
Even if they don’t do it for lifestyle reasons, if a downturn does occur, the boomers may still sell their investment properties. This is because not all of these investments are rented out, while those that are are often rented at a loss, to satisfy Australia’s absurd tax break for negatively geared property. A large number of these second and third houses are simply held onto by family members as investment properties in expectation of capital gain. Were the market to enter a sustained downturn, landlords would rush to sell — just as they did in Florida and the UK. The result could well be a rush to the exits and rapid price falls.
In fact, what really drives house prices is mortgage finance — as the US property bubble graphically demonstrated. In the US, unscrupulous lenders allowed people with "no income, jobs or assets" to buy houses. It’s not quite as bad as that here, but new home buyers still get up to 95 per cent of the money they need to buy their first home from a bank or building society. This is why the parallels with the American experience especially the many analysts arguing that "this time is different" — are so troubling.
What’s perhaps most interesting about the Home Buyers Strike is that, in effect, we’re already in one. As buyer advocate Catherine Cashmore told The Age recently, "the reason first home buyers aren’t in the market at the moment is because they can’t afford to be. They can’t save a deposit and the banks don’t want to lend to first home buyers."
According to the property lobby groups like the Real Estate Institute of Australia, there is no cause for concern. But the real question few have stopped to answer is what will happen if first home buyers start to see prices begin to fall. If a falling trend establishes itself, will those locked out of the market rush to buy? Or will they sit on the sidelines and wait for prices to fall even further?
Australia’s housing bubble will not unwind slowly or easily. I know enough friends and family who are all desperate to get into the housing market to realise that temporary falls in house prices will self-correct in the short-term, as buyers snap up "bargains". But the long-term fundamentals seem obvious to anyone not willfully blind to the experience in the US, UK, Spain, Ireland, Japan … and every other asset price bubble in history.
Correction: This article originally used the ABS median equivalised disposable income figure for 2007-08 of $692 a week, or $35,984 per annum. Several correspondents have pointed out that this may not be the best figure to use. It has been suggested that a more appropriate figure to base income-versus-house prices would be gross income, which in 2011 is estimated to be approximately $80,000. This changes the ratio of income to house prices to approximately 5.5 — which is still high by international and historical standards.
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