The more-than-doubling of home prices over the past decade is one of the most-discussed features of our economy. It’s been a real “barbeque stopper”.
I became more interested in the topic of housing (un)affordability when I chased up some of the issues for a graduation speech at James Cook University in Townsville in March. In drafting that speech, I was conscious that my audience
would be full of (a) young people, most of whom had been “left behind” by the more-than-doubling of home prices and (b) parents — many with fledglings refusing to leave the nest — who had wondered: if the economy is so great, how
come barely anyone’s kids can afford to buy a house?
Not everyone laughed when I delivered my punchline:
So cars are really cheap. Nice houses are extremely expensive. If you are trained as an economist, the obvious answer is for young people to start living in nice cars!
With home prices having surged relative to wages pretty well everywhere in Australia over the past decade or so, the main affordability problem for would-be
homebuyers — both “entry level” and those hoping to “trade up” — is that they cannot afford to buy a family home with a decent yard anywhere near where they would like to live. More than ever before, would-be homebuyers on average
earnings or better have been “priced out” of the market for well-located family homes.
In my opinion, it’s gobsmackingly obvious that a huge increase in “home-buying power” was the dominant force behind the big upswing in the average price of Australia’s eight million homes over the past decade or so, with land release issues on city outskirts a much smaller influence.
The following charts are updated from my earlier analysis, Thinking about the Big Drop in Australian Housing Affordability: