Housing affordability isn’t a particularly ‘sexy’ topic, nor does it rile the sort of passion among young people as marriage equality or climate change. But a growing number of respected economists think young Australians about the unfair economic policies that are stacked against them. One even suggested that youth should be about the cost of housing.
Housing affordability is one of the most important economic issues affecting our generation. But why should young people care about it, and what does that mean for this election?
House prices spiralling out of reach
It has never been more expensive to buy a home in Australia. A recent study found . Melbourne ranked fourth most expensive. With the median house price in Sydney teetering around $1 million, after , the great Australian dream of home ownership is rapidly spiralling out of reach of young Australians. Meanwhile, more than half of all young renters are .
Commentators of all political stripes have highlighted the crisis of housing affordability. The Governor of the Reserve Bank of Australia, Glenn Stevens, . Liberal MP John Alexander remarked that sky-rocketing house prices risked Australia becoming a . Even Alan Jones said he trying to buy their own home.
Sadly, the data backs up these sensational remarks. Buying a home has never been more expensive relative to average incomes. Sydney homes now cost . In 1975 this figures was 4-times.
First home buyer activity is also , as young people are squeezed out of the market by investors and older buyers. The proportion of young people who own their own home has rapidly declined since the 1980s – today only , down from 61 per cent in 1981.
Meanwhile, the number of investors in the housing market is . In 1985, property investors represented 13 per cent of new mortgage lending. . And these housing investors are
What does this mean for young people?
For many young people, these trends may permanently lock them out of the housing market. '' may remain renters for life. Given Australia’s , this isn’t a particularly attractive prospect for our generation. Lifelong renting denies young people access to the many (both economic and social), and they are at risk of .
For young people who are able to save for a deposit, it will take them longer to do so than ever before. It now takes , versus four years in 1986. And for those who are fortunate enough to eventually buy a home, they are likely to be burdened with more debt than any previous generation. Recent home buyers are loading up with so much debt that .
All of this adds up to a dire outlook for young people. In fact, on the current trajectory, . This would be the that the standard of living dropped from one generation to the next.
This bodes poorly for the Australian ‘fair go’, and will act as a barrier to social mobility. Young Australians who aren’t fortunate enough to have their , or who are unlikely to inherit housing wealth, will increasingly struggle to buy a home. This will .
The housing affordability crisis is compounded by a range of other economic trends which disproportionately affect young people, including the , rising university fees, and .
The high cost of housing also poses a . Economists . But if a serious price collapse were to occur, the impact on the economy (and young people) would be severe.
Why is housing so unaffordable?
Tax policies such as negative gearing and the capital gains tax (CGT) discounts are major culprits. Negative gearing allows property investors to deduct their property expenses against their regular wage income. The discount to CGT reduces the amount of tax that investors pay on their profits after selling investment properties.
These policies unfairly , who are typically . Negative gearing encourages which pushes up prices and squeezes out first home buyers.
In a further blow to equality, the beneficiaries of negative gearing and CGT concessions are . Despite all the talk of , and using negative gearing to ‘just get ahead’, the vast majority of the dollars flow to the .
The total cost to the budget of negative gearing and CGT is around $10 billion a year. Respected economist Saul Eslake estimates that this is .
While it is certainly true that and a have also exacerbated the growth in house prices, reforms to tax policy are a simple fix that shouldn’t be ignored.
What can be done about it?
Australia must have a serious national conversation about the long term consequences of falling rates of home ownership. Reforms to negative gearing and CGT are an obvious part of this conversation.
Innovative alternate policies should also be explored. For example, Share Equity schemes (where a home buyer jointly purchases a home with the government) have been trialled in . These schemes have shown initial success in enter the property market.
What can young people do to influence policy?
The election is a great opportunity to make your voice heard. The major parties have divergent views on housing policy.
The Liberals’ advice to young first home buyer’s has ranged from , to . The Liberal party has failed to propose any meaningful policy reform in the area of housing this election campaign. The Liberals have historically as the answer to affordability issues.
Labor has bravely (and unexpectedly) made housing affordability a key feature of the campaign by proposing to and reducing the discount to CGT. The strength of this policy is that it provides an incentive for investment in the construction of new housing, which will increase supply.
The Greens go slightly further than Labor by proposing the complete removal of negative gearing and CGT concessions for all new purchases. They also propose a strengthening of renter’s rights, and additional funding for community housing.
Maintain the rage
The issue of housing affordability is fundamentally about fairness, intergenerational equity, and social mobility. Fixes to the current housing crisis are obvious, but have been deliberately ignored by politicians in order to pander to older, wealthier, homeowners.
As a young person, you should be fuming about the failure of governments of both stripes to fix this enormous issue. Maintain the rage, and make your voice heard this election.
Benjamin Ward is a strategy consultant who has worked in Sydney and New York. He is building a start-up that aims to improve housing affordability for young and lower-income buyers.
