Australia’s housing market is in a ‘triple crisis,’ according to a new report.
Australia’s housing market is experiencing a “triple crisis,” one of which is an unintended consequence of rising home prices.
Australia’s economy is in a “triple crisis,” prompting calls for a royal commission to investigate the housing industry’s future.
Why? Because the Australian property market is performing exceptionally well.
“When the pandemic began, economists warned that prices would fall by 20% to 25%. Prices are now increasing by 20% to 25%,” Chris Leishman, a University of South Australia professor of property and housing economics, told news.com.au.
“The fact that commentators’ predictions change so frequently demonstrates how unstable the housing market is.”
Prof Leishman was one of the lead researchers on a new report released on Tuesday that found banks and the government were responsible for igniting the frantic housing market.
The report, titled ‘Housing: Taming the Economy’s Elephant, interviewed 87 experts and took a year to complete.
Among the report’s findings was that the number of homeowners under the age of 35 has halved since 1995, with the majority of properties now owned by those aged 65 or older.
Prof Leishman stated that he is “seeing evidence that people (under 35) are giving up” on home ownership as a result of the recession.
According to the research, home ownership has become unattainable for Australians under the age of 35.
Australia is the most indebted developed country, surpassing the United States, the United Kingdom, and Canada.
The inequality divide continues to widen as the housing market continues to expand.
Houses in Australia are selling in an average of 32 days as the economy recovers from COVID-19.
The housing sector exacerbates a three-fold problem: it destabilizes the economy, increases inequality, and, perhaps most surprisingly, reduces productivity.
“When the economy is booming, we see an increase in housing prices. That is the information we already had,” Prof Leishman stated.
“(In the report), we actually address the question of whether there is a feedback loop in the opposite direction.”
They discovered a “reverse” feedback loop in which expensive houses drive young professionals out of the city and into the outer suburbs or regions in order to afford a home.
Prof Leishman explained that as housing markets become more expensive, more productive workers are displaced.
The authors of the report advocate for a royal commission into housing and for the Reserve Bank of Australia’s responsibilities to be expanded to include housing prices.
“We believe the RBA’s mandate should be broadened to include the housing market,” Prof. Leishman stated.
He is particularly concerned about interest rates, which are at a record low level at the moment.
“It would not take much for a change in interest rates to wreak havoc on the housing system,” he explained.
The report advocates for redistributing housing stimulus funds to the social rental sector while the market is reevaluated.
House prices ‘explode’
Prof Duncan Maclennan, the report’s lead author, stated that something must be done.
“The recent surge in house prices introduces a new and troubling dynamic,” he explained.
“Rampant price growth has returned to Australia’s major cities and is now affecting regional Australia.
This is partly because of the pandemic-driven work-from-home revolution, but also because so many younger Australians can no longer afford the lifestyle they desire as homeowners in the larger cities.”
‘There is an elephant in the room’
The report’s purpose was to draw attention to the proverbial “elephant in the room” when it comes to property purchases.
“The housing system elephant is not only a poorly understood beast by policymakers; it is also wreaking havoc on the economy,” it read.