Last week the Commonwealth Bank released a report suggesting that house prices could drop by up to a third due to the economic fallout of the pandemic.
Such reports have some young people hopeful of a silver lining — they might finally own a home before their hair greys! Those lucky enough to still be earning and saving are praying that fewer, poorer and less eager rival buyers might allow them to finally snag an otherwise unreachable property.
I even briefly contemplated it. Pandemic restrictions enforced the kind of austere, savings-conducive lifestyle that boomers incensed by pricey smashed avo have long implored we youth adopt.
Alas, fellow millennials: don’t plan your housewarming just yet. House prices and housing affordability are two very different things. In fact, many economists say this crisis will both smash house prices and make it even harder for young people to break into the market.
A unique opportunity… for investors
In past economic crises, such as the GFC, cities that saw house prices slashed did not typically see rising home ownership in the aftermath.
A recent report by Swinburne University academics shows that prolonged reductions to household incomes and investors outbidding buyers for finance dampened the ability of young families to capitalise on downturns.
Many of those crossing their fingers for a sneaky corona purchase may soon see their incomes affected by an economic crisis that is only just beginning. And banks are now even less likely to approve loans to those with “uncertain incomes and those less likely to get a pay rise” — a growing category that already includes many young people.
Even if you’re financially prepared for auction, most will still find themselves pipped by investors on a bargain hunt.
The only miracle cure is policy change. To prevent a generation of perpetual renters, the least Australia must do is drain speculators from the demand pool by revoking ludicrous tax incentives (no matter how unpopular that may be in Canberra).
Constructing fairer cities
Another partial solution is massive investment in building new homes to stimulate the economy. It’s an option being pushed by Labor, the Greens, unions and building companies.
A building blitz could assist young buyers, but it depends on the type of housing. We already build lots of middle- and upper-class dwellings in Sydney and Melbourne, but far too few public, social and affordable houses. But it also depends on where the houses are built. As Crikey has long noted, NIMBYs rejecting reasonable residential developments have long been pushing young families and migrants away from affluent areas to urban fringes.
Lockdown has reminded us of the importance of well-serviced neighbourhoods with good parks, trails, shops and other amenities. It is precisely these features that middle-ring suburbs enjoy, and growing fringe suburbs often lack.
The pandemic is already renewing cynical calls for lower density in the name of hygiene — the affluent have long depicted lower classes as contaminants on their pristine streets. But despite flimsy objections by vested interests, increasing access to vibrant hubs remains economical, sustainable and simply more fun — you can’t treat neighbours to your amateur lockdown opera if they can’t hear you.
Having a say in our suburbs
A common and reasonable objection is that of heritage preservation. Yes, it can be used as a cudgel for exclusivity — a NIMBY activist once proudly told me her plan to stop residential development of an entirely essential private tennis court — but few would herald the bulldozing of historic and culturally significant architecture.
And the real estate moguls who do the bulldozing are as much progressive allies as big pharmaceutical companies are to universal healthcare; they’re self-interested accessories at best, greedy detractors at worst.
After Jack Mundey’s passing, many have fondly recalled the bonds forged between his union and bourgeois community activists to rebuff sleazy developers from plastering over Sydney’s history. But Mundey also fought for working-class neighbourhoods and public housing residents against corporate gentrification — many of whom now cry out for more and better-quality dwellings.
The politics of planning is complex and fraught. But what shone through Mundey’s activism, and the best critiques of urbanism today, is a commitment to worker democracy. Workers didn’t just pave Sydney’s streets, they influenced which bricks went where.
Today, housing decisions are most often contested between capital owners — those whose asset values stand to rise, and those who stand to lose.
As I stretch my lockdown legs walking through restless streets, it occurs to me that working people likely had no say in every two-storey weatherboard, every modern sharp-edged slab, every struggling coffee shop and poxy yoga studio.
Economic downturns won’t change that. Only better policy can, and that won’t happen without collective action.
If we see a construction boom, I politely ask our nation’s tradies to down tools until the asset-less get a say in the future of our cities.
What total rubbish! This isn’t journalism; its just polemic. For the vast majority of families their investment, yes investment, in their home is their biggest investment ever of their lifetime, which also provides them shelter, security and a financial return (particularly the imputed rent). And while it may be self interest to want to protect that investment, what is wrong with that?
All to often we are subjected to the pressures of businesses wanting an environment that attracts investment and howls against ‘sovereign risk’ when a democratically elected government wants to undo or change a previous governments investment environment. So just why should family investors in homes not howl against arbitrary changes in urban planning that undermines if not completely takes away their investment choice? And keep in mind their investment is not just financial and to make a profit, but also investment in social connections, the neighbourhood, the schools etc etc.
NIMBYies can just as well be depicted as people defending and protecting their, and their neighbours’, financial and non-finacial investments in their suburb; just as any business person could be depicted as a greedy, money grubbing selfish person if they expect to make any profit.
To rant about NIMBYism is just name calling at its worst. Its a very low form of argument.
Rather than just blather, the author of this article would be better off educating himself in urban planning. A good start would be to read ‘Game of Mates’ by Murray and Frijters, or my publication with Prof Julie Smith that won the ANU’s Peter Harrison memorial prize in town planning.
Mark…I don’t care how much you know about town planning, or how many prizes you win…people like you are the PROBLEM, not the answer!
Your ‘only room at the top for select people attitude’…those with lots of money…makes me sick!
The sooner we get a decent government…and an electorate that cares about other people…the sooner we can get rid of the rorts like negative gearing. And provide some decent, well positioned, PUBLIC housing, so people who actually do essential work in our cities have halfway decent access to their place of employment!!
I think we can all live without town planners…if the mess our cities are in is anything to go by…but NOT emergency workers, medical and nursing staff, firefighters, police, et al, the very people who mostly don’t earn squillions. You may have occasion to find out what I’m talking about, if you need assistance from any of these people in the future.
Well, CML, there are certainly some contradictions in your reply.
Firstly, history will show you that in the absence of town planning the poor are relegated to slums. Residences for the poor will be in low cost areas next to toxic factories, tanneries etc etc. I’m no cheer squad for bad town planning of which most of us are aware as developers with the right political connections always seem to get their way.
Secondly, I agree with you that negative gearing is a subsidy to the rich and wealthy. Just as is superannuation tax breaks, private health insurance subsidies, franking credits, and the concessional taxation treatment of capital gains, employer fringe benefits and cars, no inheritance tax. I could go on and on and on, as this Morrison government seem to take pride in handouts to the rich; something they seem addicted to.
Thirdly, I also agree with you on public housing. But again, that’s a question of governments funding it. Yes, public housing can be made ‘cheaper’ by reducing standards for poor people through smaller dwellings, high rise, less parks, constructing public housing on low cost land etc etc? But do we want public housing to end up being tents on a floodplain next to a piggery, while the rich live in their 250square metre central city apartments (approved by the urban consolidation zealots) and take annual holidays to St Moritz? I don’t think so.
Fourthly, and this is where I disagree with you, I don’t believe the answer to housing affordability is best achieved by lowering standards. The rich will always maintain their desired standard. What lowering standards does is condemn only the poor or less affluent to living in lower standard dwellings. Or do you envisage some command economy, old Soviet style communism, where the rich will be prevented from building their MacMansions?
On a personal note, I’m retired with an income of around $50,000pa & I still have a mortgage on the 3 bedroom 160 square metre house on 800m2 of land where I live. I pay extra tax each year because I’m a big supporter of public health/Medicare. So yes, I consider myself well off.
You are right, Mark: not journalism, just immature polemic.
It’s a pity the Judith Neilsen Institute for Journalism and Ideas doesn’t require its writers to put in the hard yards before mouthing off. Perhaps read a book on town planning or urban economics. Perhaps learn something of the history of Australian cities and towns too – Patrick Troy is a good guide.
Fresh ideas are fine, but this article is like a social worker dropping into a household with generations of strife and dispensing advice without any understanding of the dynamics.
It has been obvious for decades that housing unaffordability in Australia is the product of many and varied policy, regulation and planning debacles. It has also been a product of letting the supply side largely dictate what is available. For example, the burgeoning tracts of appalling McMansions is a direct result of market research that a whole lot of buyers do not want to know or have any contact with their neighbours or engage in the community where they live. That is thankfully, not everyone, but enough to blight our outer suburbs with that dismal architecture.
Secondly, affordability has a lot to do with size. Our governments and planners who have abdicated any meaningful market guidance has led to the average size of an Australian dwelling being 213m2, the largest in the world by far. The US – 195m2, Europe – 95m2, the UK – 75m2. But even if the young want smaller more efficient, more socially connected housing that product is not available.
It is, therefore, way past the time governments stepped in and adjusted the mess that social housing has become. Mandate that a substantial proportion of new housing involves smaller more efficient housing and instead of segregating housing and ‘industry’, integrate places of work, including low impact workshops, manufacturing and offices into all new estates.
Oh yeah, and get rid of the corrosive and illogical negative gearing scam – the system under which those who can afford a deposit and a loan for a 2nd or 3rd property get subsidised by all this who do not have that financial capacity.
Further, start realising the certainty that the age of selfish and polluting personal transport is fast coming to an end and stop scarring cities with ugly and massive roads pandering to the inefficient selfishness of one car per adult family member. ECVs will change all that forever, starting soon.
Another sponsored article!
As suggested recently by our resident irascible commenter, https://uat.crikey.com.au/2020/05/13/media-giants-coronavirus-survival/#comment-445725, if the journalism is worth reading, there’d be no trouble being paid.
I wonder if the reference to “…ludicrous tax incentives… was That Which Must Not Be Named – N*g*t*ve G*a*ing, the fatal wound of “Labor” in 2019?
Imagine if there were a federal agency, perhaps a bank, acting as a lender or mortgage guarantor, to ensure that those on the dole (surely the most secure of all incomes in the near future) could buy cheap houses in the regions.
There are more than enough vacant & cheap (compared to an inner city rabbit hutch) 4/5br on acres currently crying out for occupation throughout the depopulated countryside.
Then those regional towns would have a greater population, which would mean more local schools & libraries, would be (more) viable, clinics & even hospitals would be able to attract doctors & dentists to the area who would need tradies, shop assistants and, dare I suggest, tertiary services such those extolled by the anti-industry writers on this site, hairdressers and restaurants.
Yes. I must admit I thought about who might ‘sponsor’ such an article, but didn’t want to be too cynical.
But here are also some ideas to improve affordability of housing. Why not abolish HECs debts? I understand Bernie Sanders is purposing such a proposal in the USA.
Also, why not deal with the artifical increase in demand for housing that is foisted on the States by the federal government allowing ever increasing numbers of low paid ‘guest workers’ (ie.457 visa)? If Kristina’s proposal is too unPC, despite its inherent logic, then get the feds to pay and subsidise the States for the housing infrastructure costs their policy imposes on them.
Or even take a lesson from that free enterprise nation Singapore and double our minimum wage so we encourage high wage industries, not low paid ones? This would also fix what Morrison sees as a problem of the minimum wage not being a big enough incentive to get people off Newstart.
“resident irascible commenter” could refer to any number of the curmudgeons that lurk here like trolls under bridges, God luv ’em all!
Pretty sure that Jack knows that was written with much love & great respect.
Housing prices down by a third? I find that hard to believe. Similar thoughts were expressed during the GFC and while prices dipped a bit for a few years, the sheer lack of housing stock ensured prices bounced back with a vengeance. With housing stock still several hundred thousand below market demand, there’s no reason to believe the same won’t happen this time.
Ben, you make the argument that planning and supply are causing high house prices and locking youth out of the market. You need to check the evidence – see link to my recent article below.
Supply in Australia is at record levels and we have some of the highest rates of housing supply in the developed world. House price increases have been driven by interest rates and population growth (i.e. Net Overseas Migration).
https://www.thefifthestate.com.au/innovation/design/dont-blame-planning-for-a-supply-shortage-and-rising-house-prices/
I don’t know what you’re reading, but just a couple of years ago, according to RP Data, we were 200,000 dwellings below market demand. I doubt the situation has changed. As we saw with the GFC, house prices dipped a bit, but then rose dramatically within a few years. Whilst our housing stock remains hundreds of thousands below market demand, it will always be thus.
The ‘politics of planning’ might be complex and is all too often dominated by vested interests, but a government who was actually serious about doing something for the people, not just their rich mates, could easily make the case for more egalitarian housing decisions and planning.
I’m all for lower density housing and it’s not as if we don’t have room in this vast land, but one of the complexities is that we wouldn’t want all those who have bought a home at very high prices to lose much of their investment by suddenly making masses of land available close to where they currently live.
But, for example, one could easily visualise dozens of towns on the inland side of the Blue Mountains connected to Sydney with a fast train and a 110kph motorway. Our forefathers managed to build Canberra in the middle of nowhere, this should be a doddle.
As far as getting the economy up and running in the immediate future, I would look no further than social housing. We have the money, tradies and demand. Build them where low income earners have easy access to work places, mostly in inner towns and cities. Literally force local councils to make property available in their towns by moving their holdings to the outskirts.
Unless I’m missing something fundamental, I can’t see any other way around our housing affordability crises. Maybe an actual town planner or architect out there has better ideas, but I have yet to see them in a serious, down to earth essay or article.
Just out of curiosity, why would “dozens of towns on the inland side of the Blue Mountains” WANT to be “connected to Sydney with a fast train and a 110kph motorway. “?
That’s the point, get out & get away from the onrushing Crapocalypse – none who escaped would regret or miss the mess.
I agree Keith, the actual price of building hasn’t risen that much since the 60/70s, but if masses of land was suddenly available it would certainly drive down site costs, but also land mortgage payers with a mountain of debt on homes with a fraction of their original value. Hence the complexity. So what’s the solution?
Oops, reply went to the wrong comment. But to you A, I agree my off the cuff scenario probably won’t happen, but do you have a solution?
Unless I’m missing something fundamental, I can’t see any other way around our housing affordability crises
You are missing the use of a land value tax (or basis for rating). That would bring the cost of housing right down, as it’s not the cost of the timber, bricks, fittings and labour that presents the barrier, it’s the cost of the site.
I agree Keith, the actual price of building hasn’t risen that much since the 60/70s, but if masses of land was suddenly available it would certainly drive down site costs, but also land mortgage payers with a mountain of debt on homes with a fraction of their original value. Hence the complexity. So what’s the solution?