Home ownership dream dims, researchers find
Posted on: September 14th, 2009 by Marketing and Communications
The great Australian dream of home ownership is slipping away leaving a major economic and social problem for future governments and the threat of a US-style collapse in home prices, according to a team of Flinders University researchers.
In a major analysis the Flinders Institute for Housing, Urban and Regional Research (FIHURR) found that:
- During a period of strong economic growth and relatively low interest rates between 1996 and 2006, overall home ownership edged up only 0.8 per cent,
- Home ownership fell by 15 per cent over the two decades to 2006 for low income earners over 45 years of age and medium-high income earners under 45 years,
- Big gains in national income from the resources boom were “wasted’ by increasing house prices and accumulating debt to unreasonable levels, and
- The First Home Owners Scheme boosted home purchases for people under 25 years of age but that many lower income earners in the 25-44 age group are unlikely to ever own their own homes because their ‘baby boomer’ parents are spending their inheritances and prices remain high.
Revealing the findings of the FIHURR research at a seminar of housing policy makers, academics and government advisers in Adelaide today, Dr Joe Flood said “the writing is on the wall for the ‘Australian dream’.”
“The country that promised limitless land, cheap housing and near universal home ownership to all comers now has the most expensive housing in the world amid very tight housing and land markets and little prospect of restoring the balance,” Dr Flood said.
“As long as the government, the public and the media remain in denial, and self-congratulatory rhetoric continues that Australia has cleverly avoided the housing market correction it needed to have, there is little chance that matters will improve,” he said.
“The only ways that this would happen are through a US-style price collapse or a complete re-evaluation of the situation and a coordinated effort by governments, planning and financial institutions to restore the balance between housing supply and demand – or tax away the imbalance – so that all Australians may benefit.
“If rises in national income continue to disappear into higher house prices as they did during the study period, Australia will have to get used to being a country of low home ownership, people living with their parents, and small houses by international standards.”
Dr Flood – one of Australia’s leading housing economists and an Adjunct Professor at Flinders University – undertook one of the most comprehensive studies of Australia’s housing sector since a landmark study by Dr Judith Yates between 1986 and 1996.
Assisted by Flinders University geographer Dr Emma Baker, the FIHURR team analysed Census data to conclude that Australia’s housing market is in “a very dangerous and unstable situation which has received little adverse attention”.
The researchers found that after 1996 average house prices increased by three times on average – to around 6.8 times medium household income – and debt levels surged.
“On the one hand Australia is vulnerable to a collapse like the United States, where prices fell by a half during the sub-prime collapse in those areas where they had boomed, back to an acceptable three times income – or to a long slow decline as in Japan since 1988, which is probably worse as it will mean very large real rent rises in the current tight market,” Dr Flood said.
The researchers said that “contrary to popular opinion, the baby boomer generation actually ‘did it tough’ when it came to home ownership, living through a period of very high interest rates, restricted finance and labour force casualisation”.
“Those with higher incomes have managed to recover from this situation but the lowest income group has not, with ownership rates 15 per cent lower than their parents. This will get worse as the younger cohort ages, and losses in home ownership will probably extend across the bottom 40 per cent of over 45 year olds,” Dr Flood said.
“Redressing this situation is a matter of some urgency. We are reaching a situation where for the first time two generations will be on the aged pension, a very considerable load on the community,” he said.
“Some small impact might be made by relaxing the conditions on the First Home Owners Scheme to appeal to this age group, but once again this is ‘fuel to the flames’. It seems unlikely that very many low-income people over 45 will become home owners, and the government faces the prospect of paying rent allowances for up to 40 years.
“It may be cheaper to increase the stock of public housing – possibly funded by a tax on capital gains which as this report concludes have been artificially inflated by unarticulated government monetary and planning policies.”
Tags: Flinders Institute for Housing, Urban and Regional Research
September 14th, 2009 at 4:28 pm
Housing unaffordability is a deliberately created phenomena in Australia and has the misguided intentions and associated actions of government, financial lenders, media and RE lobby at its rotten core.
Congratulations to the author of this article.
It will be a sign of progressive intelligence to see policy makers sit down and take this matter seriously. Watching young people wasting so much money, time and resources to simply get a roof over their heads is an exercise in regression. Rather, would it not be better to have various govt policies channel capital and energy into productive industry/export orientated business.
September 15th, 2009 at 1:06 pm
At last, an up to date evaluation of the home market (as opposed to housing) in Australia. As one of the baby boomer generation, I appear to fit the demographic as described above. Dr Flood and the team have crafted an accurate portrayal of the realities of the present using well researched historical facts and arrived at a conclusion that is worthy of significant appraisal from Canberra. The long term cost to Australia should be recognised and dealt with appropriately, as Flood suggests. I find it difficult to comprehend how Australia with an abundance of land can have such high home ownership costs. No doubt a significant contributor is a lack of adequate town/city planning driven by corporate greed which results in long term high costs for infrastructure. I will look forward with hopeful anticipation to a positive reaction and action from all levels of government to addressing this issue.
September 16th, 2009 at 5:37 pm
State and Local governments love rising house prices because so much of their revenue is based upon it, so this must diminish their likelihood of rectifying the situation. Ehormous transaction costs / taxes also reduce the likelihood of the elderly moving out of the large family home to make it available for families, until they can delay their move no longer.
The media make too much money from Real Estate advertising to advocate change which might see more affordable housing, and of course real estate agents will always say ‘there has never been a better time to buy”.
But for the rest of the population, the high cost of home ownership is of no benefit at all (aside from a few property investors), and carries enormous potential social costs. Well done, Dr. Flood et al, for producing such valuable research. I hope it may bring about some change.
September 17th, 2009 at 9:51 am
Well done to this team. It was great to hear these authors put in clear words that 2 generations will be on aged pension at the same time in this country as I dont’ think enough people actually comprehend what that means across all aspects of society. I have just had my parents in the US (over the ages of 65 with one having serious chronic health condition) re-mortgage their house to the maximum for another 15 years without receiving any income other than the equivalent aged pension and super supplement (based on shares). In particular, with my parents, it means that my mother, who was not the main bread-winner, could be left destitute should my father die as her income reduces down to a single aged-pension with a debt she won’t be able to manage. This is happening here as well and those hardest hit will be women - who live longest and with more health issues. It will be interesting to see if Australia has the guts to finally break away from the US lead in fiscal management and bring back the egalitarianism that brought me to this country 21 years ago.
September 21st, 2009 at 7:49 pm
The doom-sayers are well ensconced on their soap-boxes. There is little mention of this countries cronic shortage of housing, short suppy of new building land and the fact that house prices always double every seven to ten years. Why cant people just accept that our housing market is invulnerable to the wider worlds problems and that owning property is part of the Australian dream? We have seen how badly the stock market has been in providing for peoples retirement, and those people who have their life savings invested in their homes can sleep soundly at night, as they have been doing for many years, and especially recently. Dr Flood seems to want to spoil the party and if he had his way we would all be worse off. The simple truth is that bricks and mortar are the safest place for your money; guaranteed!