Australia’s skyrocketing house prices are widening the chasm in wealth and income inequality, which threatens to destabilise the national economic recovery, according to a panel of experts who are calling for a Royal Commission into the issue.
According to a new report by UNSW’s City Futures Research Centre, which consulted a panel of 87 economists and housing experts, this gap is widening due to the country’s fragmented approach to housing policy.
“Policy makers grasp at different pieces of policy impacting housing, including tax policy, monetary policy, macro-prudential policy, housing, infrastructure, planning and other sector actions, but never grasp the whole system,” the report said.
More than two thirds of the experts’ panel agreed that “the absence of a coherent housing market strategy for Australia now constitutes a significant barrier to structural adjustment in the economy and to an effective post-pandemic recovery”.
The UNSW researchers also took aim at the Reserve Bank, which they said were “flying in the face of advice from other central banks” and taking a “sanguine” approach to rising house prices in the belief that it would be beneficial for economic growth.
“This view has no validity if the longer-term evolution of the economy and the housing market is the concern.”
House prices far outpace income growth, the country’s home-ownership rate has dropped by 4 per cent, and the home ownership rate of Aussies under 35 has “collapsed”, the report noted.
“For the economy, these trends reflect a triple crisis where housing price outcomes have exacerbated income and wealth inequalities, contributed to economic and financial instability and – often unrecognised – diminished productivity and growth.”
The post-COVID property boom is bad news for lower earners
Australia’s property market has grown at breakneck speed since the early days of Australia’s emergence from the first recession in nearly three decades – but housing affordability has worsened as a result, and the expected age of house ownership has been pushed out further and further.
And as regional house prices and rent race higher, growing at three times the pace of capital city prices, lower-earning Australians are struggling more and more to find housing near their workplaces.
“High metropolitan house prices and rents push lower and middle income households further away from employment-rich locations, reducing overall labour productivity by diminishing the 'thickness' and matching effectiveness of labour markets,” the report stated.
A mounting volume of debts taken on to service mortgages are creating “instability risks” for the economy, with the concentration of wealth largely in the hands of older Australians.
“As for rising housing wealth, it is not like the wealth created from effort and innovation, for that creates gains for all. Rather, it makes some Australians – the affluent and older – better off, by making younger and poorer Australians, and also future buyers, worse off,” the report said.
How do we fix this problem?
The UNSW report made seven key recommendations, including the establishment of a Royal Commission on Housing Future Australia to address this issue spanning different departments and levels of government.
The issue ought to take higher priority with the Federal Government: a minister in the Prime Minister’s cabinet should be in charge of housing policies and outcomes. Assistant Treasurer Michael Sukkar currently holds the portfolio of Minister of Housing.
The National Cabinet, established by Prime Minister Scott Morrison to coordinate COVID-19 strategies with state leaders, should also create a sub-committee dedicated to housing, the report recommended.
The Federal Government should also develop a National Housing Strategy, and the National Housing Finance and Investment Corporation should be expanded into a ‘National Housing Agency’.
The RBA’s remit should also formally be expanded to include maintaining stable house prices and a well-functioning housing market.
In the meantime, the report suggested the Government should also focus on boosting the social rental sector.