The Downsized ‘Australian Dream’ 3

Friday, August 7th, 2015
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Home ownership is falling in Australia, and the homes that people do own are smaller but nicer than they were a generation ago, an inquiry into housing and its affordability has heard.

Economist Saul Eslake has told a federal parliamentary economics committee the home ownership rate of 67 per cent recorded in the 2011 census is the lowest since 1954.

The decline is greatest among households headed by those aged between 25 and 55 years.

Mr Eslake says that while shifting preferences among young people might explain some of the change, unaffordable housing is likely to be the main cause.

He says rising property prices – driven by low interest rates and more readily available home loans – are responsible for much of the rise but he also criticises federal, state and local government policies for compounding the problem.

First home buyer grants, the halving of capital gains tax on property, stamp duty exemptions and poor local government planning laws have combined with constrained housing supply to make the situation worse, he says.

“These policies have had the effect of simultaneously inflating the demand for housing and constraining the supply of it,” Mr Eslake told the economics committee recently.

He said these higher prices were now capitalised into housing prices to the benefit of people who were already in the market.

“This amounts to a significant redistribution of wealth from younger households to older ones,” he said.

Investors had been encouraged into the market by generous tax treatments for both negative gearing and capital gains, he said, and there was “room for argument” as to which policy was more responsible.

Mr Eslake also challenged the position, taken earlier this year by Treasurer Joe Hockey, that abolishing negative gearing on investment properties would drive up rents.

He said housing supply would increase as investors sold rental properties, easing pressure on rents and allowing more people into the housing market.

The committee also heard from Reserve Bank of Australia head of financial stability, Luci Ellis, who warned that changing negative gearing rules was not the answer to the housing affordability problem.

“We are not suggesting that negative gearing be looked at in isolation,” Ms Ellis said.

A holistic review of the tax incentives was needed, she said.

Liberal MP and committee member Craig Kelly expressed concern about the decline of the traditional quarter-acre block for homeowners.

“A family might have less room to go and play cricket in their backyard or kick a football around,” he said.

“Obviously that is a negative effect while the increase of a better kitchen or a better bathroom might be a positive.”

However, Ms Ellis said Australian tastes were changing and not everyone wanted the big block these days.

“The average number of spare bedrooms has increased between 1997 and 2011-12,” she said.

“For a given household type and for a given household size, people have actually got more house than they used to have.”

By Peter Trute
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  1. JDGary

    I sometimes suspect that the power that be are wilfully attempting to deprive millenials of any chance at home ownership.

  2. Matt Ryan

    Over priced housing… This isn't a new problem, its been growing for years. Firstly, home construction is roughly the same price as 30 years ago (inflation considered). The land price however has risen 400% in the same time.

    I believe the biggest contributor to the problem is the governments reduction of the urban growth boundaries and subsequent reduction in land supply.

    Possible solutions:

    Remove the urban growth boundary (free market economy)

    Sell all government land banked land via auction, which will stop dodgy deals.

    Renewal SA needs to just to publish government land and auction it on the free market.

    Renewal SA need to get out of developing land themselves. Example the Tonsley redevelopment. What a money pit!!!!

    There needs to be a royal commission into the interaction of governments with large land developers. I have seen in my state. The only people who do significant development are the people tied to political parties.

    Bob Day thinks similarly to me here's and article he published.

  3. Bruce Christopher

    There is so much negative talk about housing affordability for first home buyers that the notion is accepted without checking all the facts. Affordability is more about monthly burden of payments, which overlays income, house prices and interest rates. When this is done, housing affordability has been quite steady for the last 2 decades and actually more affordable than the late 80's when we struggled to buy our first home. It has always been difficult to begin ownership.