Home ownership dream dims, researchers find

oz-housingThe 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.”

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