We’re back to record property price growth, so what’s being done about it?
Australian homeowners are hocked up to the eyeballs, the federal Treasury says.
“The house-price-to-income ratio has indeed risen, Treasury’s director of the domestic demand, Crystal Ossolinski, told a parliamentary economics committee.
“Back in the early 1990s, you were looking at 2.5 times, and now you’re looking at just over six [times].”
What that means simply is that Australians are borrowing amounts of money many more times their annual income, which is fuelling property price rises.
Officials from Treasury and the Reserve Bank fronted a parliamentary committee on Tuesday to wrestle with what is driving record property price growth, and what can be done about it.
The House of Representatives Economics Committee heard the debt-fuelled property boom meant people aged under 40 were now less likely to own a home than at any time since 1947.
And it was only getting worse for millennials, federal Treasury assistant secretary John Swieringa said.
“The deposit to get into the housing market in the first place has become the real pinch point for housing affordability,” he said.
Mr Swieringa conceded the government’s recent policy measures to leapfrog first home buyers into the market had boosted demand, but stopped short of saying they were reducing housing affordability.
“And so we look at some of the government schemes like the First Home Loan Deposit Scheme, the First Home Super Save Scheme – those schemes assist people with getting over the threshold of the deposit,” he said.
High prices and high demand
Committee member Labor’s Matt Thistlethwaite rejected that.
“The thing that gets me is the Australian government system of support for housing is actually geared and designed to produce the outcomes we get, and that’s high prices and high demand,” he said.
Residential property prices rose 6.7 per cent in the June quarter of 2021, the strongest quarterly growth since the Residential Property Price Index series began in the September quarter 2003, according to figures released today by the Australian Bureau of Statistics (ABS).
The mean or average price of a residential dwelling is now $835,700, up from $678,500 a year ago, according to the ABS.
In a preamble to a question, Mr Thistlethwaite accused the government of “engineering” soaring property prices.
“The government policies in housing are aimed at constraining supply and increasing demand, and we wonder why we’re getting the outcomes that we’re getting with unaffordability,” he said.
The committee heard 200,000 dwellings had been approved for construction over the past 12 months, and this extra supply would help to dampen price growth.
But it does not solve the problem.
So, what can be done now?
Treasury’s Mr Swieringa pointed to changes to stamp duty (at the state government level), and reform of zoning and planning laws (at the local government level) as possible avenues to improve affordability at the margins.
“But of course, those kinds of regulations rest with state and local governments, so it’s not necessarily a lever the Commonwealth government can pull,” he said.
The Reserve Bank research shows local and state government policy reforms may improve housing affordability, but only slightly.
Independent economist Saul Eslake is the vice-chancellor’s fellow at the University of Tasmania.
His property market research also backs that up.
He said the key to significantly improving housing affordability lay both with boosting the housing stock for those who could least afford property (social housing) and withdrawing federal government stimulus.
“In particular, [remove] elevated cash grants to would-be home buyers that end up in the pockets of vendors, and tax preferences that enable property investors to elbow aside would-be first home buyers,” he said.
During the 2016 federal election, Labor announced it would wind back negative gearing — a policy that incentivises property investors to take on loss-making investments for tax purposes.
Labor dropped the policy earlier this year.
So, what are we missing?
The Reserve Bank rammed home the huge influence the big spike in the population had on the property market from 2005 — lifting prices dramatically.
But key to soaring property prices, said assistant governor Luci Ellis, was record-low interest rates and the resulting challenges of putting a deposit together.
“As people’s capacity to service mortgages increases, their capacity to pay a higher price increases, but that means [home buyers] need to accumulate a bigger down payment,” she said.
“And so it just takes longer to accumulate a down payment than it used to, and not everyone is easily able to do that, particularly in an environment where a lot of young people have insecure employment.
“And so it becomes less accessible to lower and middle-income households to accumulate that deposit and qualify for a mortgage.”
Financial markets had been pricing in interest rate rises as early as next year, but on Tuesday afternoon, RBA governor Philip Lowe hosed down any suggestion that would lift before 2024.
But that will no doubt come as welcome news to highly leveraged households across the country.
The Reserve Bank is also monitoring bank lending standards.
In the statement outlining the latest monetary policy decision, Dr Lowe said housing credit growth had picked up due to stronger demand for credit by both owner-occupiers and investors.
“Given the environment of rising housing prices and low interest rates, the bank is monitoring trends in housing borrowing carefully and it is important that lending standards are maintained,” he said.