High mortgages are the new contraceptive: Senator Bob Day
GUEST OBSERVER
For more than 100 years the average Australian family was able to buy its first home on one wage. The median house price was around three times the median income allowing young home buyers easy entry into the housing market.
As can be seen from the graph below (� Real Home Price Index�), the median house price has increased, in real terms, by more than 300% - from an average index of 100 between 1900 and 2000 to an index over 300 by the year 2008. Relative to incomes, house prices have increased from three times median income to more than nine times income.
That�s $600,000 they are not able to spend on other things - clothes, cars, furniture, appliances, travel, movies, restaurants, the theatre, children�s education, charities and many other discretionary purchase options.
It is a similar story in the UK, US, Canada, New Zealand, Ireland and Japan. The economic consequences of this change have been devastating. The capital structure of these countries� economies have been distorted to the tune of hundreds of billions of dollars and for those on middle and low incomes the prospect of ever becoming homeowners has now all but vanished.
Housing starts are below what they should be and so have all the jobs associated with them - civil construction, house construction, transport, appliances, soft furnishings, you name it. Not to mention billions of dollars in lost taxes and other housing-related revenue to the nation state.
The distortion in the housing market, this misallocation of resources resulting from the supplydemand imbalance is enormous by any measure and affects every other area of a country�s economy. New home owners pay a much higher percentage of their income on house payments than they should. Similarly, renters are paying increased rental costs reflective of the higher capital and financing costs in turn paid by landlords.
12th Annual Demographia International Housing Affordability Survey (2015: 3rd Quarter) The economic consequences of all that has happened over these past 15 years have been as profound as they have been damaging.
The housing industries of these countries have been decimated as have industries supplying that sector. Economies have been distorted and getting them back into alignment is going to take some time. But it is a realignment that is necessary. A terrible mistake was made and it needs to be corrected. Home ownership has long been a feature of western life. Levels of home ownership rose sharply in the postwar period.
Home ownership had become both a symbol of equality and a means through which average citizens could provide security and stability for themselves and their families while building wealth and claiming a tangible stake in their nation. For the vast majority, owner-occupation of the home in which they live was, and remains, a great ambition. So what happened? Why have �house prices� skyrocketed?
While influential bodies in Australia like the Productivity Commission and the Reserve Bank focused their attention on demand drivers like capital gains tax treatment, negative gearing, interest rates, readily accessible finance, first home buyers' grants and high immigration rates, few were looking at the real source of the affordability problem - land supply for new housing stock.
It is undeniable that demand factors played a role in stimulating the housing market and those factors were, for the most part, in the hands of national governments. However, the real culprit, the real source of the problem, was the refusal of local and state governments and their land management agencies to provide an adequate and affordable supply of land for new housing stock to meet demand.
The graph below (Capital Cities: Price of Land per sq/m�) highlights the growth rate in the price of serviced allotments in Australia�s five mainland capital cities. This massive escalation in the price of land carries with it a multitude of detrimental impacts. Establishing affordable rental accommodation for those in greatest need becomes even more difficult for social and public housing authorities as they seek to purchase land and housing in a greatly inflated market.
Road widening and major infrastructure projects experience cost blow-outs as land acquisition costs skyrocket, and establishing schools, community centres, health services and business facilities becomes difficult, and at times impossible.
The whole community suffers as a result of increased 12th Annual Demographia International Housing Affordability Survey (2015: 3rd Quarter) tax, transaction, finance and establishment costs. It is important to remember that the "scarcity" that drove up land prices is wholly contrived - it is a matter of political choice, not geographic reality.
It is the product of restrictions imposed through planning regulation and zoning. The problem is, it is young home buyers, hit with spiraling costs of home ownership who end up paying. They are mostly forced into overpriced units and will never be able to afford their primary ambition � a free-standing family home of their own. Quite apart from the economic foolishness of it all, it is morally wrong for legislators to be enriching some (established home owners) while impoverishing others (first home buyers).
We cannot deny the rising generation a home of their own merely to satisfy the ideological fantasies of urban planners and the financial concerns of State and Territory Treasury officials. We cannot deny ourselves the joys of grandchildren because young women have to work to pay mortgages instead of raising a family. The joke that high mortgages are the new contraceptive is becoming no laughing matter. Young women used to be afraid of getting pregnant, now, as they approach 40, they are afraid of not getting pregnant.
We have to get back to the situation where a couple can pay off a mortgage on one income so they can start a family in their 20s, not in their late 30s or early 40s. In creating the conditions for home ownership to become the privilege of the few rather than the rightful expectation of the many, governments have produced intergenerational inequity and breached the moral contract between generations.
In human affairs this imprecise, and at times neglected, moral contract between generations dictates that we should leave things better than we find them. When it comes to home ownership this contract has been breached. In making home ownership much harder for the next generation we have denied them much more than a home. We have denied them the security and benefits that go with home ownership and the opportunity to build wealth that will provide them with options in later life.
Many are now choosing to defer having a family in the hope that they will be able to somehow put together the funds to buy a home later in life. If they can't afford to buy a house, they certainly can't afford to have children! 12th Annual Demographia International Housing Affordability Survey (2015: 3rd Quarter) When the time for retirement comes, those who own their homes have much more control over their lives than renters.
They can choose where they will live and how they will live. Given the vast social and economic benefits that flow from homeownership, restoring housing affordability should once again become one of a nation�s most important priorities.
Senator Bob Day, a former National President of the Housing Industry Association, wrote the forward for the 12th Demographia report. He was elected as a Senator representing the State of South Australia at the 2013 Australian Federal election.
