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Politics

Soaring house prices turn 'Australian dream' into nightmare

Canberra mulls tax changes as young workers are squeezed out of the market

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A newly-constructed home is listed as sold on an advertising board in the Sydney suburb town.   © Reuters

MELBOURNE -- Like many of her peers, Megan Shellie doubts that she will ever be able to buy a home within a reasonable commuting distance of a job in one of the teeming coastal cities that drive Australia's economy.

Even though she expects to be earning a salary of up to 60,000 Australian dollars ($45,000) after graduating from university in June, the 23-year-old is despondent about a market in which property prices seem increasingly out of reach of average wage-earners.

"In the future, I'd like to think that I could have a modest house in a suburb of Sydney or Melbourne [and] a reasonable commute to a well-paying job -- but looking at the numbers, and in particular the total stagnation of wage growth in Australia, I don't think this will be the case," Shellie, a student in Canberra, told the Nikkei Asian Review.

"I see a future where young people are forced to rent to live in the areas they want to live, with little opportunity to save a deposit."

While concerns about housing affordability are on the rise across the developed world, they are perhaps felt most acutely in Australia, where the national dream of home ownership bumps up against the reality of some of the highest property prices on earth.

Since 2009, the median house price in Sydney has doubled. Second city Melbourne has not been far behind, with prices climbing 80% over the same period. Even in much smaller Canberra, home to 350,000 people, prices have risen by a third.

Today, the respective median prices in Sydney and Melbourne are an eye-watering A$1.1 million and A$800,000. In a study of 92 global cities released earlier in 2017 by Demographia, a U.S.-based consultancy, Australia's largest urban centers were ranked the second and sixth least affordable places to buy a home.

Only perennially expensive Hong Kong was judged to have a less affordable housing market than Sydney, with Vancouver, Auckland and San Jose, California, also ranked higher than Melbourne.

Against this backdrop, rates of home ownership have declined in recent decades, with the sharpest drop seen among younger Australians. Between 2002 and 2014, the ownership rate among those aged 24 to 35 years old fell 10 percentage points to 29%.

In the eyes of many, the "Australian dream" seems to be dying, if not dead already.

"I think this really is a barbecue stopper," said John Daley, chief executive of the Grattan Institute, an economic think tank in Melbourne, highlighting the gravity of the problem. "It's a big issue for anyone who doesn't already own a house, or who has a child that doesn't own a house, and that's a large part of the population."

Baby boomer investors

The root of the problem, many analysts argue, is an addiction to property speculation that has allowed aging baby boomer investors to pad their retirement plans with property investments, driving up prices for first-time buyers.

Mortgage lending to investors has totaled $A14 billion in each month in 2017 to date -- exceeding the value of loans extended to buyers intending to occupy the properties they are acquiring. Unlike many countries, Australia allows property investors to write off losses through the tax code, a practice known as negative gearing.

A historically low official interest rate of 1.5%, following a worldwide trend that emerged out of the 2008 global financial crisis, has further fueled the borrowing spree.

In a withering assessment, British economist Jonathan Tepper last year described Australia as a country where "middle-class houses are auctioned like paintings."

"The reason people are having to change their ideals is because policy favors speculation on land, and when you allow a nation to speculate on land, that's when prices start to get high," said Catherine Cashmore, a property market analyst and media commentator.

"So the people now who are getting into property are either the people who win the parent lottery -- that's those people who are able to be gifted a deposit from their parents -- or they happen to somehow come across something that will allow them to have a deposit to get into the property market initially," she added.

Others pin the problem on factors such as rapid population growth, which is closely related to high levels of immigration, and the concentration of jobs, mostly in services, in the center of sprawling, sparsely-populated cities.

"One of the features of big cities is that the land with good access to jobs -- so that's essentially in the inner and middle rings of those cities -- tends to go up in price," said Daley.

With housing affordability arguably becoming the biggest issue in domestic politics, the government has faced mounting pressure to tackle it head on. Prime Minster Malcolm Turnbull, leader of the ruling center-right coalition, has signaled that the May 9 budget will address the issue, possibly through changes to capital gains tax rules and increased provision of government-funded social housing.

Retirement funds scheme

Much more controversial has been a proposal to allow would-be buyers to use funds from the national retirement scheme to get onto the property ladder. Critics of the idea, which has split coalition parliamentarians, say the move would risk the security of retirement funds while doing nothing to improve home affordability.

There is also widespread suspicion that the government will not risk any action that could result in lower house prices, fearful of angering the large numbers of people who have banked on making a return from their property holdings.

"Now, to actually to do the transition and say, 'right, no more, we are going to start taxing the land and [reduce] income tax instead' -- well then you capture all those people who are retiring who have built their lives up around speculating on land," said Cashmore.

In the meantime, many young Australians are likely to continue feeling betrayed over the hand dealt to them by previous generations.

"I'm not alone in my anger and despondency," said Shellie. "Many younger people feel that some baby boomers have had the advantage of free education, cheap houses and now negative gearing. They've climbed the ladder and pulled it out from underneath them, failing to advocate for an equitable housing market, taking the benefits without caring about the generations that come after them."

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