Dyou haven’t heard it? That sound this week was that of a generation shut out of the housing market, letting out a howl of desperation directed, rightly so, at those whose only chance in life was to be born earlier than them.
The howl of the under 40s wondering where they are in Australia’s glorious dream of owning their own home.
Emoh Ruo is no more.
Oh yes, hear the cry of anguish from those born after 1980 when they read the title of the Australian Bureau of Statistics press release announcing the latest household wealth figures: “Record house prices continue to boost household wealth. “
A scream heightened on reading that the office’s finance and wealth manager notes that “growth in household wealth continued to be driven by residential property prices, which recorded the strongest quarterly growth ever. recorded (6.7%) ”.
Well, isn’t that nice.
The ABS noted that these prices were driven by “record interest rates, growing consumer confidence and demand above housing stock levels in the market.” But perhaps there should also have been government policies designed to ensure house prices go crazy even during a global pandemic.
This week, the Deputy Governor of the Reserve Bank, Michele Bullock, spoke with perfect timing about Australia’s house prices and financial stability.
She argued that while low interest rates were a reason for the strong growth in house prices, so was “government support for housing construction, including the house building program.” .
As I noted last week, the lesson from GFC and the pandemic is that Australian governments will do anything to prevent house prices from collapsing – even if that means skyrocketing them in the world. at the expense of affordability.
All because the wealth of Australian households is totally dependent on rising land prices.
If we exclude the 30% increase in land value over the past year, total household assets only increased 9% instead of 17%.
During the 1980s and early 1990s, land represented about 30% of total household assets; it now reaches 42%.
No wonder then, like the Grattan Institute reported, that 30 years ago, well over half of people aged 25 to 34 had their own home and has now fallen to almost 40%.
And so yes, household wealth is doing very well right now. If you are a homeowner.
And that’s a big if.
If the relationship between home loans and prices holds, by the end of this year house prices in Sydney and Melbourne could have risen by as much as 40% in one year. And this in a year in which both cities have been stranded and wages will have the chance to grow by 2%.
It is not without risk.
Michelle Bullock noted in her speech that “if rapid price increases ultimately prove to be unsustainable, they could lead to sharp declines in prices and turnover in the future.”
This in turn could “amplify” any future economic downturn, as “a large number of heavily indebted households” could cut spending just because of concerns about their debt and falling house prices.
What we have seen in the past is that governments decide that the solution is to pump the housing market even more during downturns to avoid this amplification.
But that can only put off until tomorrow what needs to be faced now – it’s really just a gamble that governments can still support the market.
At least, the ALP reflects on the issue of the offer and proposes a $ 10 billion Australian Housing Future Fund designed “to build social and affordable housing”.
With bitter irony, the fund would be managed by the Future Fund, which is chaired by Peter Costello, the treasurer who oversaw the massive increase in negative debt and declining housing affordability due to tax changes to the late 1990s.
The lesson of the 2019 election, alas, seems to be that housing affordability policy should never do anything to bring down house prices.
No government wants to slow the growth of wealth, and so the cycle and the cries of desperation are likely to continue.