This is part two in a series on inequality. Read part one here.
One of the few economic positives expected to emerge from the pandemic in 2020 was a fall in house prices, with banks forecasting a 10% decline in prices as lockdowns began, with gloomy scenarios bandied about of a 30% decline. Coupled with interest rates cut to the bare minimum, this would have represented a significant boost to housing affordability in Australia.
But while the RBA’s eventual reduction of rates to 0.1% improved affordability, our relatively successful handling of the pandemic and the government’s fiscal support for the economy helped propel property prices to a national average rise of 1%, according to CoreLogic, compared to before the pandemic — not a decline.
Much of the growth has come in a rush in the last three months, with prices nationally rising 2.1% between November and February and 0.9% alone in January-February.
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The growth is mainly around houses rather than apartments: prices for houses have grown much more quickly — nearly 7% over 2020 in Sydney, nearly 4% in Melbourne and nationally at 5.8%.
As Reserve Bank governor Philip Lowe said last week, that has pushed the national house price index back toward levels it reached four years ago. In some markets — Brisbane/Gold Coast and Adelaide — 2017 peak prices have already been exceeded.
With the Reserve Bank flagging no interest in pushing rates into negative territory, continuing price increases will mean housing affordability will worsen, driven by extremely low interest rates and a surge of first home buyers entering the market.
While rising prices are a win for asset owners, for low income earners in major centres like Sydney and Melbourne it represents a further deterioration of already poor affordability, particularly in suburbs close to where major economic and employment opportunities are available.
A suite of government policies exacerbates the affordability crisis. The federal government continues to use taxpayer money to subsidise property investors to compete alongside those entering the housing market. It also rejected universal calls from business, welfare groups and unions last year to fund more social housing as part of its support for the construction industry, preferring to subsidise property owners’ renovations.
But the federal government has the excuse that it does not have direct responsibility for social housing, which is a state matter. In NSW, since 2017 public housing dwelling approvals have averaged less than 50 a month, and in some months approvals dropped into single figures. In supposedly progressive Victoria, monthly public housing approvals averaged less than 30 over much of the last decade — in some years less than 20 — although numbers lifted toward the end of 2020 as the Andrews government finally invested funding in public housing stock.
In Queensland the public housing story is slightly better, but monthly approvals averaged below 30 in 2020 compared to levels of around 50 a month in 2017.
One tool for younger people to use to achieve an otherwise prohibitively expensive entry into the housing market is borrowing or obtaining money from parents. The “bank of mum and dad” became so widespread over the last decade that in 2016 then-head of Treasury John Fraser admitted he had helped his children out with housing costs.
“The Bank of Mum and Dad is becoming more and more prevalent,” Fraser said at the time, revealing it worried him, especially in relation to low-income people and the risk of parents risking their own financial situation and retirement to help their offspring.
Fraser was correct. According to one analysis, the bank of mum and dad increased from $65 billion in 2017 to $92 billion in 2020, and is the fifth-largest source of housing finance, behind the big four banks.
Voluntary inter-generational wealth transfer further entrenches inequality: low-income and young people without well-resourced parents to draw on are less able to enter the housing market, while those from middle-class backgrounds gain not merely the advantages of a comfortable childhood and education but support to purchase their key asset. And lower-income parents place their own retirements at risk in trying to help their children do the same.
Some factors will curb the impacts of worsening housing affordability. The much greater use of working from home provides workers with more options about where they live in relation to their employment — though this has little benefit for workers in construction, laboring, hospitality or retail, which are also industries which have seen much poorer wages growth in recent years. The virtual suspension of immigration for the duration of the pandemic will reduce housing demand, especially for apartments.
Other mooted policies will exacerbate it. The push by Liberal MPs to allow people to raid their super for housing purchases would pump billions of dollars of extra demand into the housing market, further pushing up property prices and benefiting assets owners and banks (which is the real goal of the proposal, along with destroying the superannuation sector).
Even without such policy idiocy, asset owners look set to continue to prosper, while those stuck without are further away than ever from basic financial security.
Tomorrow: education costs and other attacks on the future