I was in Sydney recently, and within less than an hour of my arrival of the airport, I was thrust into a conversation about how completely unaffordable the city was becoming. 'Bonkers' was the general consensus. But how did it get this bad and what can be done to repair the current state of affairs?
Part of the issue with home ownership is that it serves two purposes? — ?as an asset (or more appropriately, a vehicle for middle class wealth accumulation) and a home. Any government wishing to make housing affordable has to contend with homeowners who don't want to see the value of their asset drop, while simultaneously placating new entrants to the market who want to see housing become more affordable and within their reach.
Research by Rachel Ong for CEDA shows that fewer young people in 2013 (25 percentage points) own their own home compared to ownership rates for the same cohort from 1982. The home ownership rates of older cohorts has remained roughly the same. However there has been a slight increase in the proportion of home-owner investors across all age groups.
Many a commentator has pinned the housing affordability issue on young people for not being frugal. But there are a few things that are different now to generations past.
An increasing number of young people are taking on higher education debt. It is a good thing that we've been able to extend the opportunity of many more young Australians to access higher education. However, this is quite a different scenario to the one faced by Gen Xers for whom education was free (or much less than the CSP rates that undergraduate domestic students face now) and therefore had less debt to pay down.
And while there are certainly benefits to having a compulsory lifetime savings scheme in superannuation, it locks up a lot of capital and potential assets that young people could have put towards securing a deposit on a home.
These present significant constraints and imposts on the ability of young people to independently finance their own home. However in spite of all these constraints, the demand for housing has not wavered. Young Australians (and new entrants to the market) want the opportunity to call a piece of land their own, not unlike their parents and grandparents before them.
"Our focus has been so excessively drawn towards opposition to new development, that we've lost sight of the harm that it is doing to our fellow humans who are merely in search of a place to call their own."
Many policy options to make housing more affordable have been floated. It's hard to tell what the impact of each of these policies on house prices and home ownership rates will be in the longer term.
In early 2017, APRA reported that interest only loans comprised about 40 per cent of lending in the sector, which, by APRA's own reasoning, was high by international and historical standards. It has since mandated that interest-only loans issued by Authorised Deposit-taking Institutions (ADI) would comprise only 30 per cent of all new loans.
In addition to the prevalence of interest-only loans, other incentives have been built into our tax structure that, while intended to improve housing affordability, have the added effect of increasing speculative investment in housing. These include the commonly cited negative gearing and capital gains tax discount.
The Grattan Institute outlines some of the possible effects and likely magnitudes of changing these policies in its latest report. The Grattan estimates that these measures might be able to shave a couple of percentage points off house prices which is no small feat, but notes that the most effective ones are the hardest to sell politically.
However they do state that increasing housing supply by 10,000 homes a year above the current rates of housing construction would result in a 20 per cent drop in national house prices over the next decade. It is clear that in order to save our cities from the impending dearth of affordable housing, we need measures that will increase supply.
Ours is not the only country grappling with floundering supply. In the US, San Francisco has been plagued by a housing affordability crisis where a wicked combination of high earning people geographically concentrated on an island with severe planning constraints has led to a catastrophic housing crisis.
A swathe of legislation has been introduced in California to encourage the construction of new housing, ?including streamlining of the development process, and punitive measures for councils who do not meet housing approval targets.
In a similar vein, the NSW Parliament, in an attempt to streamline the development applications process, passed amendments in 2017 to enable independent planning panels to approve applications of $5 million or more (up to $30 million). This is a positive step towards ensuring councils are not shirking their responsibility to provide housing for new entrants to the market.
Other ideas that have been floated include implementing development application targets that councils should meet to increase housing supply.
It is increasingly the case that jobs are located close to the CBD and people desire to live in close proximity to their place of work. Urban California's stalemate is what awaits us if we don't put a stop to the chokehold on housing supply.
Part of this is caused by residents who have been vocal in shutting down development in their areas on spurious grounds, the NIMBYs. One need only take a walk around the inner suburbs to spot a homeowner with a corflute or banner at the front of their house (occupying two plots of land no less) declaring that a new development isn't needed in the area.
But these attitudes need to be contested. Because a key issue with the housing development debate is that our focus has been so excessively drawn towards opposition to new buildings, construction and development, that we've lost sight of the harm that it is doing to our fellow humans who are merely in search of a place to call their own.
Gabriela D'Souza is an economist based in Melbourne.