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.
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
Prior to retirement I had been involved in the real estate and building industry since 1959 and been though many booms and busts in housing but one result of all actions taken by governments to stimulate the building industry with grants and subsidies is that it merely resulted in price rises and all the benefits going to the developers and builders.
In the current situation the rise in costs of housing is very close to the amount of the grants and subsidies given by governments and the dropping of deposits to 5% means most of these first home buyers that have responded to the government grants are now creating mortgages of the total true value of the home . If the $2.9 billions given in grants to developers had been used to build social housing our community would have permanent assets to help relieve the massive problem of homelessness while at the same time creating the jobs the government claim is required. This transfer of funds to big business is a policy of this government as demonstrated in the way they have privatise the care of the aged where huge sums of money is spent without any guarantee that these operators with not abuse or neglect the residents the government pays them to do.
The long term and ongoing attempts by Wilson, Bragg, Hume and their ilk to destroy the industry super funds at the behest of their owners/donors, is a crime against the working people they disingenuously claim to be trying to help. Their inclusion of superannuation in the Banking Royal Commission, hoping that they would be found wanting, was a spectacular own goal which destroyed retail super funds (eg AMP) while boosting the “clean sheet” industry funds massively as people voted with their feet after hearing the scams unearthed by the commission.
Last year, with more success, they were at it again, callously leaving desperate low income workers displaced by covid with little financial support, but dangling the carrot of access their super. That was a dog act which trashed the retirement incomes of those who withdrew their super contributions, but also damaged the funds and those who remained in them. That was of course the main aim, along with getting desperate people to donate their potential retirement money to fund the government’s stimulus package, which they did to the tune of around $40 billion. Win/win for the LNP.
This latest gambit by Timmy “Freedom Boy” Wilson (IPA, Goldstein) to allow people to use their super as a deposit to buy houses is another scam of the same ilk, almost certainly being worked up for an election some time soon. It sells a false binary (house or super but not both), populist message which will have appeal to many who probably have never heard of Albert Einstein’s rumination on compound interest, the underlying long term wealth builder in superannuation. To quote Albert:
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”I suspect Wilson believes most working people fall into the latter category – and unfortunately for workers and the country, he is probably right.
Ahah! The RBA, still wallowing in the delusional idea that high and increasing house prices add to the ‘wealth effect’ allowing consumers to buy more. Which part of Ponzi scheme are they struggling to comprehend. The RBA used to be the very epicentre of policy cleverness, now they are dumb as bowling balls. Bring on the recession we have to have, asset prices need to fall. This is crazy central bank policy.
Read this, people will be saying it in 5, 10 or 15 year’s time, it doesn’t matter when, but the sooner it comes the better.
Bereft.
I’m not sure how young people get into the market We need more jobs outside the big cities. My home town of Mayborough QLD has good homes for high 200s. But it’s not Sydney but a provincial city. More jobs in these areas would be great