Australians are carrying record levels of debt to pay for homes ever more distant from their places of work.
So serious are the problems that there are fears Australia could become a “Jane Austen world” where wealth will be determined by a parents’ housing portfolio, and people are forced into choosing between buying a home and having children.
The American-based Demographia group, which measures affordability by dividing median property prices by a city’s median income, recently estimated all major Australian capitals – Sydney, Melbourne, Brisbane, Adelaide and Perth – were among the least affordable urban areas in the world. Our banks have become addicted to mortgages. In 2005, the Commonwealth, NAB, Westpac and ANZ banks held a combined $364 billion in mortgages, for both owner-occupiers and investors. Their mortgages were equivalent to a quarter of GDP.
And even when people have saved a deposit, the mortgage they hold is enormous. OECD data shows Australians are the fifth most indebted in the world with a household debt as a percentage of disposable income ratio of more than 200 per cent.The recent review of the Reserve Bank found one of the reasons it did not cut interest rates in the period between 2016 and 2019 was concern they would only increase the levels of debt carried by Australians.
Senior research fellow at UNSW’s City Futures Research Centre, Chris Martin, says Australia is paying a huge financial cost due to the surge in prices over recent decades. Within 25 years, the share of income servicing the mortgage fell to about 8 per cent. Today, a couple buying now will, in 25 years, be shelling out 16 per cent of their income on their mortgage.
The Grattan Institute’s Brendan Coates says Australia is watching the slow destruction of inter-generational equity as young people are priced out of home ownership Between 2002 and late last year, the population grew by 6.5 million. About 70 per cent of that growth was in Sydney, Melbourne, Brisbane, Adelaide, Perth and Canberra. Another 700,000 people moved into Ballarat, Bendigo, Geelong, the Gold Coast, the Sunshine Coast, Newcastle, Wollongong and NSW’s Central Coast.
Chief economist at property and mortgage exchange PEXA Julie Toth says the fall in household size had been a critical factor in the most recent lift in prices. Independent economist Nicki Hutley says the stimulus pumped into the housing market during the pandemic, including through the federal government’s early superannuation access program, repeated the mistakes of previous governments and their efforts to make property more affordable.“What they’re actually doing is making the problem worse, not better. And it’s not one government, it’s all levels of government,” she says.
“NIMBYism is a big obstacle and so we need to change the process and give voice to people other than NIMBYs,” he says. Globally, official interest rates have been falling since the mid-1990s. By the time of the COVID pandemic, they had hit record lows everywhere. Productivity Commission chair Michael Brennan says the inability of people to buy affordable housing close to their place of work is a drain on the overall economy.
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