Housing has been the hottest political and economic topic in this country for years now, but if you think we’ve seen peak fury, you are wrong. The stage is set for an eruption of economic emotion as the housing market goes further into meltdown mode.
Here’s the situation as we find it now: rental vacancies are at record lows, while rental inflation is ceaselessly rising, up 6% over the past year and not likely to cool any time soon.
Migration is also running hot, with a net 150,000 permanent and long-term arrivals in just the first three months of the year. (This is different from net overseas migration, which can involve granting a visa to someone already present in the country.)
While this is happening, the building sector is starting fewer new builds, with approvals at their lowest levels in about a decade — well below the recent peak and even below peak levels of approvals back in the 1980s.
We aren’t going to build our way out of this, by the looks of it.
Melbourne in particular is packing up and going home, as the next chart shows. Crane numbers are falling, and what’s looming on the horizon is usually involved in a Dan Andrews infrastructure project, be it rail, road or new hospitals.
The net result is house prices are rising despite the firmest prognostications that they would fall in 2023. The price of dwellings rose 1.2% in May alone, according to CoreLogic. If that rate were sustained for a year, the median dwelling in Australia would go up 14% in a year and add $100,000 to its price tag.
In past housing booms, it was credit supply that made housing go crazy. Now it’s the underlying level of demand. Interest rates are supposed to be restraining demand for mortgages, but when people are clambering all over each other to find a place to live, they can only do so much.
In this environment, there’s only one way the housing market can adapt, and that is by absorbing more people into each dwelling, on average. RBA boss Philip Lowe told Senate estimates as much — and got roundly shellacked for being out of touch. But he doesn’t control the migration numbers, nor the planning system, nor does he build public housing. He’s just calling it as he sees it. People per dwelling is not a fixed quantity — it fell in the pandemic and it will now surely rise.
There’s another way the market adjusts, too, and that’s by spitting people into homelessness. Expect to see more people rough sleeping — and remember rough sleeping is only the visible part of the homelessness iceberg. Some 10% of homeless people sleep on the street, while 90% are couch-surfing, camping in backyards, staying in shelters, boarding houses, etc. This doesn’t include people living in severely crowded dwellings, who may also be categorised as homeless by some definitions.
The Albanese government’s limp “Housing Accord” isn’t going to satisfy hordes of angry voters at the next election. There needs to be more, and I would not be surprised to see action on the migration side, more first-home-buyer handouts, and even some social housing construction as the government begins to appreciate the depth of feeling on the topic.
Fact remains, the propertied class are a voting majority. The ‘hordes of angry voters’ worked up about not being able to get into the market are not. Raw electoral math leads successive governments to cave to the former not the latter. We need to accept the fact that no government is going to do anything that allows prices to fall, at most they will take some heat out of the market. Building more affordable housing is an important element but real change is going to require a long, planned process of weaning middle Australia off housing as an investment vehicle, otherwise it is too tempting for another Howard to come along and buy his way into power with outrageous handouts to property investors.
Yes, perhaps now but that has to changing as more and more people in the under 40 demographic are locked out of owning property! Older, greedy types die out and while they can pass on wealth they can’t vote when they are dead!!
Sure, but those older investors will pass on their property to their kids, who will start the cycle all over again. We can’t expect simple generational change to solve the issue.
A public education campaign to let all those ‘mum and dad investors’ know the societal impact of jumping on the negative gearing train?
For too long the received wisdom was that it was the lowest risk, and most profitable, way to set your family up.
Residential property as an investment vehicle has turned us into two classes with parents pitted against children.
But just stopping it now will lead to the strife that Keating experienced from short term pain for most involved.
Maybe the teals and greens can blackmail Labor into courageous policy.
I like your optimism but I don’t think just educating people about negative societal impacts works. We need to provide people with incentives to invest their money in assets other than housing eg. greater CGT breaks on shares, ETFs etc. If there is a public education campaign to be had, it should be one that helps people understand that investing in companies can be a social good, and is certainly preferable than using it to inflate the housing market.
Dont forget our very own politicians are firmly in the “propertied class’. Its in their personal interests to keep this going, not hold it back. I think we have to get used to the fact they look after themselves first.
Dont expect any significant action but be prepared for weasel words.
One hundred and fifty thousand people in three months. Sweet Jesus. At what point does this actually become a bad idea?
Sooner or later the undergraduate accusations of xenophobia whenever the current immigration intake is raised are going to ring pretty hollow.
For Heaven sake, we all know there are multiple reasons we have a housing crisis, but it is glaringly obvious that the demand side of the problem is fuelled by immigration numbers being way too high.
Our nation has been built on immigration but until rental/housing costs stabilise and infrastructure catches up, can we please ratchet down the immigration numbers?
The town in which I live is heavily dependent upon immigration. We’re one of the most multicultural contiguous urban areas in Australia. If immigration was stopped, our economy which is already suffering from a tourism downturn due to crime will become moribund. We can’t find sufficient workers as it is. My body corporate fence which was destroyed in a storm in November — yes, November — still has not been replaced because fencing contractors can’t find sufficient labour for the demand. Many country towns face similar situations. Reducing immigration will cause further decline in many regional economies. Guess where the remaining residents will go?
This is the problem with anti-immigration discourse. Its proponents don’t think these things through. They see the world in simple terms, and view supply and demand of overseas migrants like a tap; turn off overseas immigration, and magically everything works out well. Beware the law of unintended consequences is my advice.
I don’t think anyone thinks as simplistically as you suggest. There is a problem with continuously trying to adjust to each increase in demand, that then results down the track in a glut. Many immigrants don’t want to go to rural towns to build fences, and instead create demand stress in the capital cities for housing. Like stimulus packages for housing, rapid increase in immigration has many consequences. What we need is to respond much more slowly to perceived crises so that we have a better chance of establishing a sustainable equilibrium that doesn’t result in these constant boom and bust cycles
“In this environment, there’s only one way the housing market can adapt, and that is by absorbing more people into each dwelling, on average. RBA boss Philip Lowe told Senate estimates as much — and got roundly shellacked for being out of touch. But he doesn’t control the migration numbers, nor the planning system, nor does he build public housing. He’s just calling it as he sees it.”
That’s the trouble. Phil calls it as he sees it. Trouble is his vision is impaired and he does not have much of a world view. He is protected in what he sees like the emperors of old. They don’t want to see the poor and this is what Phil does best. He is shielded from the poor like wealthy Indians or ancient Roman emperors. He wants us all to crowd in around the living room, around the fireplace, around the piano for singsongs. He has simplistic solutions and arguments for complex problems. Crowding is what used to happen in the past. That is why Sydney and our other capitals had terrace housing and semi-detached cottages. For working people and their families. They were small. 5, 10 or more people to a house when such dwellings could have 4 at a stretch. This is also how plagues spread and diseases like typhoid started. We will see a return of these diseases.
If Phil is not going to call out other agencies, businesses, sectors of the economy or governments out I would rather he shut up, collect his million-dollar annual contract and go off back to his mansion and read about himself in the paper. Monetary policy is limited and is perhaps ineffectual these days as well. 11 interest rate rises and still we have about 7% inflation. In the past that would have created a recession. It still might. He never says anything about the limitations of his own policy and the administration of monetary policy. Like the supply chain issues. Like the war in Ukraine and COVID in a major trading nation like China. Like price gouging by businesses. Nothing at all. I don’t think he should comment and I am surprised he is still in the job he is in.
That 6% seems way too low for how bad it seems to be. I understand it’s an average, but if my rent only goes up by 6% come December it will be an effing miracle. I’m expecting at least a 10% rise but preparing for 20. Whatever it ends up being it’ll still be more than a mortgage would have been and yet banls turned me down for being a sole trader.
Well, I’d like to know why landlords and slumlords are allowed to just keep passing on the interest rate rises to the renters; they’re a very privileged lot, aren’t they, compared to the renters who pay their mortgages for them, or owner-occupiers who own the one residence, who can’t pass the increased costs of their shelter on to somebody else. Investors – preferably called speculators in most cases – should face the same inevitability as owner-occupiers, who if they can no longer afford their mortgages have to sell up. The argument that there will be less accommodation for rent is nonsense; those residential buildings will still exist, after all. I’m in favour of government nationalising vacant residential property; pretty extreme I know, but extreme and urgent exigencies which must be dealt with in extreme ways in order to provide shelter for all.
It’s much worse – they aren’t passing on interest rate increases, they simply squeeze out of renters whatever they can regardless of their own cost. A landlord whose property isn’t even mortgaged will make the same demands from his tenants because he knows they can’t refuse if the alternative is homelessness.
Caps on rent increase and eviction protection legislation worth its name are absolutely necessary, and yesterday. As is a boost to public housing supply.
The ABS rental index goes off the rent people are currently paying, not the rents being asked for newly vacant properties.