Here’s something I don’t need to tell you: Australia has a housing affordability problem. If you’ve seen the last video I did on housing, you might remember this graph that sums it all up: house prices have quadrupled over 20 years while our wages have barely doubled. But you don’t need the graph – you’re living the graph. You know that it’s harder to buy a house now than it was for your parents and grandparents. You know that it’s getting harder to rent as well. And you may well feel like the system is rigged against you.
But how did we get here? Why did housing become so expensive, and can we fix it?
Australia’s housing affordability has been decades in the making, so we’ve got to go back in time to find the culprit. Believe it or not, the problem actually begins with a story of success. In the second half of the 20th century Australia, just like a lot of countries, grew considerably richer. By the 60s, 70s and 80s, the average person had a standard of living that would have been completely unthinkable a couple of generations before – they had cars, fridges, washing machines – and they had big houses. This was the rise of the quarter-acre block in suburbia.
This continued into the 21st century and was joined by three more culprits:
- Low interest rates, which made it cheaper for people to borrow
- A migration boom which added more competition
- And generous tax settings which made it attractive for people with money to own not just one property but a whole portfolio of them
To put it simply, more people with more money could borrow more and were encouraged to do so. All of that adds up to a massive increase in housing demand.
On the flipside, the supply of housing has not kept up. Here, one culprit is physical limits: in Sydney, for example, you eventually run into the ocean on one side and mountains on the other. And when cities do sprawl, houses on the outer fringes are often a long way from where the most of the jobs are., They alsoand sometimes lack the services that would make them more liveable, like efficient public transport. The old ‘Australian dream’ of a big suburban house in a convenient location is struggling to scale to a larger population.
The alternative to ‘building out’ is ‘building up’ – more apartments and higher-density housing. But this has also been difficult, this time because of another obstacle: the objections of those same suburban homeowners. Local council objections to development have been a major obstacle to housing supply. It’s this combo – more demand with less supply failing to keep up – that has landed us where we are. Add in a decade where wages have barely grown and it’s little surprise younger generations are doing it tough. In 1981, the median age of average first home owners was 27. Today, they’re closer to 4038.
It’s not a uniquely Australian story – similar problems are playing out in many wealthy countries – but we are an outlier. Australia’s housing ‘stress’ (people spending large portions of their income on mortgages or rents) is comfortably above average in the developed world. The Australian dream is looking a bit like a nightmare.
Last week, we learned things might keep getting worse. Our ability to build more housing is hampered by a construction industry crisis – skyrocketing costs for building materials and labour shortages have triggered a spate of company failures. Meanwhile, our demand continues to rise – in part, because more people want more space to work from home, and more and more people are choosing to live alone, and in part because migration has surged again since the pandemic.
That gap between demand and supply – between the housing we want and the housing we have – is set to get even wider over the next decade. After a few rare months of house prices falling, they’ve now started going up again and the Reserve Bank Governor has warned us the severe rental shortage will be with us for some time.
So what can we do?
There are, sadly, no simple fixes. ‘Building more houses’ will obviously be key, but the barriers we’re seeing in terms of construction and local council obstruction make that difficult to do quickly. It will require some difficult conversations. In the meantime, there is likely to be greater focus on the most urgent consequences of the housing crisis: not those who are struggling to buy, but those who are struggling to have anywhere to live at all.
The latest estimates suggest more than 300,000 Australians are in dire housing ‘need’ – either homeless, or in such a financial pinch they can barely afford their rent. At the same time, there is a shortage of government-subsidised social housing. It has declined as a share of housing since 2006, and the queue of unmet demand for social and affordable housing is nearly 200,000. The Federal Government has a proposal before Parliament to fund the construction of more social housing, but it lacks support from the Coalition or the Greens, the latter arguing it doesn’t go far enough. It’s an issue that will come into sharper focus the longer our housing crisis continues.