Experts say ‘phenomenal’ housing boom will increase inequality

In good news for home-owning retirees, Australia’s home prices experienced a “phenomenal” 2.1 per cent surge in February, the largest month-on-month change since August 2003.

But is another housing boom the best way forward for Australia?

CoreLogic’s national home value index confirms that housing values are rising in every capital city and state.

Real estate site put the increases down to “government stimulus, improving economic conditions and the limited number of homes on the market”.

CoreLogic research director Tim Lawless says the last growth phase this big was mid-2009 through to early 2010, due to stimulus measures put in place after the global financial crisis (GFC).

“These are extraordinary numbers,” Mr Lawless said. “When you look at how broad based in nature this property growth upswing is, we haven’t seen every capital city and regional markets rising since post-GFC.

“Consumers are a lot more confident but that’s against low supply levels,” he said. “In many ways you’ve got a mismatch between supply and demand that is creating a lot of urgency among buyers, which is a key factor in pushing house prices.”

ABC business writer Ian Verrender says it’s little wonder buyers are scrambling for a piece of the action because low interest rates, the imminent removal of responsible lending laws and the encouragement of financial authorities have “set the stage for a sustained real estate boom”.

He says our “monetary mandarins”, such as the Reserve Bank, are “stepping aside, more than happy to let prices rip” because they’ve bought into what’s known as the wealth effect.

“If housing prices inflate and the stock market keeps rising, people will feel wealthier and they’ll start to spend,” Mr Verrender says.

“That, in turn, will boost earnings, investment, profits and lead to higher inflation and wages.”

He says the problem with soaring real estate prices is that they “drive a mighty wedge between rich and poor”.

“Those with assets end up sitting pretty. Those without end up being left further behind.”

Read more: What retirees want from housing

Australia’s leading economists agree this is a problem.

The University of New South Wales’s City Futures Research Centre surveyed 47 senior economists and found 84 per cent agreed that “Australian governments have paid too little attention to how housing outcomes also affect productivity and growth”.

They overwhelmingly believe that economic policies have “exacerbated income and wealth inequality”.

The respondents also agree that rising mortgage debt is a risk to Australia’s economic stability.

“The vast bulk of housing experts and economists surveyed are concerned that ongoing treasury dependence on ‘cheap money’ policy will further ratchet up house prices and widen the gap between rich and poor,” says Professor Bill Randolph.

“From a purely economic perspective, the informed expert view is this will undermine productivity and economic growth.”

Almost 70 per cent of respondents to Prof. Randolph’s study agreed that “stimulating housing was best achieved through social and affordable housing rather than the private market”.

The national social housing supply has halved in the past three decades.

Read more: Homelessness and older women

Kate Colvin, spokesperson for Everybody’s Home, a national campaign aimed at ending homelessness in Australia, said a national social housing program would boost the nation.

“A $7 billion investment in social and affordable housing would unlock more than $18 billion in economic expansion, creating more than 18,000 jobs a year over four years, and making a serious dent in homelessness,” she said.

“Longer term this would also boost productivity, by allowing people better access to jobs. Social housing can lift people out of poverty and put them on a path to prosperity. A better-balanced housing system is the right thing to do. It also happens to be the smart thing to do.”

Last Friday, Ms Colvin told RN Breakfast that housing affordability was a particularly vital issue for older Australians, quoting new research that suggests the federal government needs to build 12,000 homes a year help cover the housing shortfall for those aged over 55.

“Between 1987 and 2015 the debt that people over 55 had on their mortgages blew out by 600 per cent. And that’s because people are getting into mortgages later in life because prices are so high.

“And, of course, then they’re buying at a much higher price relative to their income so they can’t pay that off by the time they retire. Between 2016 and 2031, the percentage of outright owners who are 55 to 64 is going to halve.”

She said there will be 48 per cent more renters by 2041 and one in four of them will be in rental stress, putting them on the edge of homelessness because of the dearth of a social housing safety net.

Do you think social housing is the way to tackle inequality? Or should the market continue to determine housing wealth? Is the housing boom good for the economy?

Read more: Time to address pensioners’ rental stress

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Written by Will Brodie

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