This howling of despair is the sound of dream homes being destroyed | Greg Jericho

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D.don’t you hear it That sound this week was from a generation excluded from the housing market and uttering a howl of desperation that was rightly aimed at those whose only happiness in life was being born earlier than they were.

The howls of under 40s wondering where they are in the glorious Australian dream of owning a home.

Emoh Ruo no more.

If you don’t see the graphic, click here

Oh yes, hear the scream of fear from those born after 1980 as you read the headline of the Australian Bureau of Statistics media release announcing the latest household wealth figures: “Record house prices continue to drive household wealth.”

A cry heightened when the bureau’s finance and wealth manager read that “household wealth growth continued to be driven by home prices, which had the fastest quarterly growth ever (6.7%)”.

Well, that’s not nice.

The ABS found that these prices were driven by “record low interest rates, rising consumer confidence and higher demand than the housing stock in the market”. But perhaps government policies should also have been noted to ensure house prices spin through a global pandemic.

This week, Reserve Bank Deputy Governor Michele Bullock spoke with perfect timing about Australia’s house prices and financial stability.

She argued that while low interest rates were one reason for the strong growth in property prices, it was also “government support for housing construction, including the home-building program.”

As I noted last week, the lesson from the GFC and the pandemic is that Australian governments will do whatever it takes to avoid a crash in house prices – even if that means they skyrocket at the expense of affordability.

All because the wealth of Australian households is totally dependent on rising land prices.

Take out the 30% increase in land value last year and total household wealth only increased 9% instead of 17%.

In the 1980s and early 1990s, land represented around 30% of total household wealth; now it is up to 42%.

No wonder, as the Grattan Institute reported, that 30 years ago well over half of 25 to 34-year-olds had their own apartment and today it is almost 40%.

And so yes, household wealth is just about to get underway. If you are the owner of a property.

And that’s a big if.

If the home loan-to-price ratio persists, property prices in Sydney and Melbourne could have risen as much as 40% in a year by the end of this year. And that in a year when both cities were closed and fortunately wages will rise by 2%.

This is not without risk.

Michelle Bullock noted in her speech that “if rapid price increases ultimately prove unsustainable, they could lead to sharp falls in prices and sales in the future.”

This, in turn, could “intensify” future economic downturns, as “a large number of heavily indebted households” could cut their spending simply out of concern about their debt and falling property prices.

What we’ve seen in the past is that governments have decided that the solution is to keep pumping the housing market during downturns to avoid this amplification.

But that can only postpone what needs to be addressed until tomorrow – it’s really just a bet that governments can always prop up the market.

At least the ALP thinks about the supply question and proposes a Housing Australia Future Fund worth 10 billion.

With bitter irony, the fund would be managed by the Future Fund, led by Peter Costello, the treasurer who oversaw the massive surge in negative debt and the decline in housing affordability due to tax changes in the late 1990s.

Unfortunately, the lesson from the 2019 elections seems to be that housing affordability policies must never do anything to curb house prices.

No government wants to be deterred by the slowdown in prosperity growth, and the cycle and screams of despair are likely to continue.


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