(Image: Tom Red/Private Media)

Surging property prices in the pandemic isn’t merely an Australian phenomenon — it’s happening across the developed world.

In the US, the UK, Ireland, across western, central and eastern Europe, Turkey and South America, house prices have increased by double-digit rates over the last year — in some cities, exceeding Australian increases of just under 20%. A Bloomberg series on the phenomenon this week roams the globe, examining the same surge in prices on different continents. Only Spain and India have seen (almost negligible) price falls.

In some cases, there have been variations on the theme — in France, Parisian prices haven’t risen strongly, but prices in regional France and smaller cities have soared.

They’re all propelled by the universal rocket fuel of low interest rates, which have boosted demand, but in countries where the construction industry was shut down for much of 2020, a dearth of supply has tightened the other side of the equation as well. And everywhere, working from home seems to have driven people to want larger residences, and to explore moving out of cities — as in France, Australia, New Zealand and the UK. In the UK, a stamp duty holiday has exacerbated the situation — the ending of that holiday has brought hope that prices may have peaked. The restarting of construction elsewhere may also bring some respite.

But in many major cities, rents — which dipped in the early stages of the pandemic — have also gone on a tear.

Don Layton, the former head of US public mortgage corporation giant Freddie Mac, warned back in January that the surge in US house prices “should not be shrugged off or ignored” and that it may “reflect a new normal for the dynamics of housing and housing finance”. His comments proved prescient.

In Berlin, dramatic rent increases have led to attempts to cap rents and to nationalise the city’s rental housing stock. The Chinese government — with Xi Jinping’s mantra of “common prosperity” — intervened to slow down rapid property price growth using credit controls, in a market now overshadowed by the troubles of property giant Evergrande. Justin Trudeau promised to ban foreign ownership of housing if he was reelected in Canada.

In New Zealand, the Reserve Bank (RBNZ) has been tasked with considering housing price sustainability in its monetary policy decisions and has added new tools for its credit controls such as debt-to-income levels, while the Ardern government dumped negative gearing — though NZ house prices have been considered to rise quickly since then. This morning the RBNZ lifted its loan-to-valuation requirements in another effort to curb price growth.

In California, where home prices in some cities have risen more than 20% in the last year, the first thing Democratic governor Gavin Newsom did after the failed recall effort was to outlaw some zoning restrictions preventing higher-density housing, driven by NIMBYist residents and local councils.

NIMBYism is a major problem in the land of the free, where wealthy landowners, usually far more hostile to new housing than most of their neighbours, are able to manipulate planning processes to thwart new construction.

In Australia, we have a national-scale version of NIMBYism, not just in local government and planning panel processes around the country but at the highest levels in fiscal policy in Canberra. The Commonwealth pumps billions into supporting wealthy investors to compete with low-income earners and younger people in the purchase of homes, and preventing family homes from being taxed appropriately via capital gains rules. The political interests of homeowners and wealthy investors outweigh those of younger Australians and low-income workers.

As of now, there is officially no political will to address that. Labor, having spent the last two elections trying to convince voters to rechannel the support for investors via negative gearing so that it supports the construction of new housing — thus continuing to support wealthy investors but using it productively to increase housing stock — has chucked that policy in the bin, sick of being targeted by scare campaigns.

What most other countries do not have as a structural impediment to good public policy on housing is News Corp and Fairfax. They have a colossal conflict of interest when it comes to housing, given the primary way they make money in Australia is through their majority-controlled real estate ad businesses, realestate.com.au and Domain, and so have a direct interest in high property price growth in existing markets. They magnify and amplify the political interests of homeowners and investors.

While politicians would like to shift the burden of controlling huge house price growth to the Reserve Bank of Australia (RBA) — safely insulated from the wrath of voters — the RBA has steadfastly warned against that, repeating over and over that its only interest in house prices is from a financial stability perspective. Yesterday assistant governor Michele Bullock devoted an entire speech to housing and financial stability, explaining why the bank was not about to intervene in any way because there was no threat to financial stability, even if rapidly rising house prices did increase some risks.

For the RBA, the fairness issues and the economic impact of high price growth — including damaging the flexibility of the labour market as low-income workers are priced out of areas where their skills are needed — is a political issue, to be decided by governments and the voters.

What will likely happen on labour is that industries will complain they can’t get workers and demand more access to temporary migrants, exacerbating the problem. Indeed, not merely is Australia paralysed on housing policy, we’re planning to make the current pressures much worse.

The government and business are eager to reopen Australia’s borders to migrants as quickly as possible in order to push wages down. That will increase demand for housing, particularly in major cities. The federal government, which faces decades of deficits and the need to find some extra tens of billions to fund its nuclear submarine adventure, will be particularly keen to return to high levels of overall immigration.

The children of homeowners will be looked after: they can call on the Bank of Mum and Dad, now one of Australia’s biggest sources of finance. Low-income families and people without large asset bases to draw on, however, face a generational trauma — being locked out of housing, and then not being able to help their own children find housing. They’ll spend their lives paying off the mortgages of investors who don’t have mortgages on their own homes.

Australia is by no means alone in facing this vexing problem. But we’re unique in not merely failing to respond, but making it worse, in what looks like a war by asset owners on the asset-less, a war of the old on the young, a war of the politically influential on the voiceless and underrepresented.