Tackling Australia’s Overdue Housing Crisis
Australia has been facing a housing affordability crisis for at least a decade now. Home-ownership rates have been declining for Australians below the age of 40 . Despite the Coronavirus pandemic lowering the rents in some markets during the starting of this year compared to last year, lower-income households continue to suffer.
House prices have grown more than the median incomes. The median prices have grown seven or eight times the annual wage compared to six times in the 2000s. Sydney and Melbourne are among the top 10 most unaffordable cities in the world in terms of housing prices. The largest fall in affordability was witnessed by New South Wales. The percentage of income spent on loan repayments increased to 44.6% which is 2.5 percentage points higher, during Quarter 2 of 2020 . Tasmania and the Australian Capital Region were next in line with a rise of 1.6 and 2.2 percentage points.
There has been a continuous decline in homeownership rates especially among young people and the poor . This is because only those who fall in the category of high incomes or whose parents are well off are able to enter the housing market. Those with low incomes have seen little or no improvement in access to affordable housing over the last 25 years.
Record low-interest rates have obviously been a driver of this surge in prices. Loan at cheaper rates has increased the borrowing capacity of people which has fuelled demand. Easier access to finance through government incentives and economic recovery from Covid-19 have further added to the problem.
Negative gearing along with capital gains concession has also played a role in contributing to this crisis. Negative gearing means borrowing enough to invest in a property to ensure that the cost of maintaining the property and paying interest exceeds the rental income from the property. The investors can then claim that loss against their other taxable income . Moreover, only half of the capital gains from selling the property are taxable. This encourages high-income investors to compete among themselves for the properties and thus increase their prices. First-time buyers thus find it difficult to enter the property market.
Rental affordability is another major cause of concern for many Australians. Many have been experiencing high rental stress (more than 30 % of income spent on rent) for almost a decade with wages remaining mostly stagnant. Despite receiving Commonwealth Rent Assistance, many households are struggling with the rents. Covid-19 led to fall in rents for some rental markets, but it did not make the situation better for low-income households. There has not been building of sufficient public houses over the last decade which has resulted in supply shortage and forced many to shift to private rental market, leading them into poverty.
Rental affordability was least for the State of Tasmania, with 29.5% of the average family income spent on median rent for a three-bedroom house. Faced with the situation of rental stress, Australians are forced into a state of homelessness. This is an especially serious concern for the poor, young people, and women and children escaping domestic violence.
It is important to understand that the housing crisis not just affect some sections of society but could also slow down economic recovery from Covid-19. High house prices could increase the debt taken by borrowers as property investors. Evidence suggests that an increase in mortgage debt can reduce household spending which could hamper the economic recovery process .
The RBA would not be increasing the interest rates because its primary focus would be on ensuring growth in wages and lowering unemployment. The problem of affordable housing cannot be solved unless there is an adequate housing supply. There is a need for a National Housing Policy more than ever now to solve Australia’s age-old problem of housing. Increasing social housing supply is one measure that should be included in this policy. As for rental relief, the government should increase the Commonwealth Rent Assistance . Limiting the number of properties an individual can hold would help lower house prices and reduce housing shortages. Also, negative gearing needs to be slowly removed or at least altered. There should be some restriction on the amount of loss that could be claimed on one property and the capital gains concession needs to be reduced .
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