Inside Real Estate – 27 November 2024: The great divide

I read an excellent article abstract recently about what financial journalist and author Alan Kohler termed ‘The great divide’ in relation to Australia’s housing crisis.

Alan Kohler examines the ‘housing wealth’ dividing those who purchased property 20+ years ago to now. He is quoted as saying “the price of a house has gone up from 3-4 times (annual) income to 7-8 times income in the course of a generation”.

The turning point of our current housing affordability crisis seems to be directly linked to the time when houses become more than just homes to live in and raise families and shifted towards a popular wealth generation strategy.

According to Alan’s article, the affordability tide started to turn in the year 2000.

At that time, 6 per cent compound annual growth in the value of houses over the past twenty- three years versus 3 per cent annual growth in average incomes meant that household debt had to increase from half to twice the average disposable income, and from 40 per cent of GDP to 120 per cent.

This is the most important single fact about the Australian economy. The large amount of housing debt Australians carry means that interest rates have a much greater impact on their lives, and this in turn affects inflation, wages, employment and economic growth.

It also means that those who purchased homes prior to 2000 benefit from circumstantial ‘housing wealth’, whereas those with little or no family equity behind them find it very difficult to build new wealth – and this is where the great divide lies.

Alan believes the only way to truly return to an affordable housing climate is to reject the idea that housing is a means of creating wealth rather than simply a place to live -which is of course highly unlikely.

So, what can be done to solve this housing crisis we now have on our hands?

There is always talk about the ‘bubble bursting’ but none of us have a crystal ball to predict or control that.

Governments seems to be focused on increasing housing supply, either with social housing, via the private sector or with a combination of both.

There is also talk about reducing capital gains tax for affordable housing and limiting negative gearing to new properties only.

And there is even a suggestion that immigration should be limited to twice the new houses being built to ensure new arrivals are adequately housed.

I think we can all agree that a silver bullet for solving this challenge simply doesn’t exist. But I also think we can agree that every Australian deserves a safe place to call home. We’ll just need to watch this space!

Until next time,
Stay connected.