Australia’s Housing Chaos: Alan Kohler By James Reed
Alan Kohler has published the latest Quarterly Essay, entitled, “The Great Divide: Australia’s Housing Mess and How to Fix It.” It is well known by us all that Australia has an acute housing crisis, a product of mass immigration as the site Macrobusiness.com.au has extensively documented. But Kohler discusses yet another worrying factor, that “all young people today – are paying more than twice the multiple of their income for a house than their parents – and their grandparents – did, and it’s only vaguely possible because both partners work to pay it off.” Housing prices are astronomical compared to the past, with August 2023 figures, the median Australian house price being $732,886, 7.4 times annualised average weekly earnings. Young people, living in a cost of living crisis only have a chance of paying this off with two working wages.
The problem in a nutshell, Kohler locates back to the turn of the century, where housing became very much part of speculative investment capital, whereas in the past, housing was for living. I think that is only partly true, and the big change, occurred after the end of World War II when migration began to really kicked in. I think the link between immigration levels and the commodification of land and property is the key to understanding the great transformation occurring now in Australia, and at least in the extract below, Kohler does not deal with this issue. For more see my article today “Big Business Privatises the Gains from Mass Immigration, While Putting the Costs on Us,” which goes into the real causes of our housing crisis.
“Over the past four years our three children and their partners all bought their own first houses. They’re doing it later than we did, and much later than my parents, so they’re making better money, and both partners are working, of course, but they paid about 7.5 times each income for their houses. That is typical: in August 2023 the median Australian house price was $732,886, which was 7.4 times annualised average weekly earnings.
For someone with little or no family housing equity behind them, it’s virtually impossible to break out of the cycle
In other words, my children – and all young people today – are paying more than twice the multiple of their income for a house than their parents – and their grandparents – did, and it’s only vaguely possible because both partners work to pay it off.
The problem started with the new millennium.
It is impossible to overstate the significance to Australian society of what happened then. The shift that began in about 2000 in the relationship between the cost of housing and both average incomes and the rest of the economy has altered everything about the way Australia operates and Australians live.
Six per cent compound annual growth in the value of houses over the past 23 years versus 3% annual growth in average incomes has meant that household debt has had to increase from half to twice average disposable income, and from 40% of GDP to 120%. 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. In the Australian economy, the price of houses is not everything but it’s almost everything, as the economist Paul Krugman once said of productivity.
Land and energy are the two basic economic inputs apart from labour, but while Australia has more of both than just about any other country, we export most of the energy and price our own at global parity, so there’s no homegrown advantage there, and we crowd into a few cities and pay each other seven to eight times our salaries for land.
High-priced houses do not create wealth; they redistribute it. And it’s meaningless because we can’t use the wealth to buy anything else – a yacht or a fast car. We can only buy other expensive houses: sell your house and you have to buy another one, cheaper if you’re downsizing, more expensive if you’re still growing a family. At the end of your life, your children get to use your housing wealth for their own housing, except that we’re all living so much longer these days it’s usually too late to be useful. And much of this housing wealth is concentrated in Sydney, where the median house value is $1.1m, double that of Perth and regional Australia.
It’s destructive because of the inequality that results: with so much wealth concentrated in the home, it stays with those who already own a house and within their families. For someone with little or no family housing equity behind them, it’s virtually impossible to break out of the cycle and build new wealth.
It will be impossible to return the price of housing to something less destructive – preferably to what it was when my parents and I bought our first houses – without purging the idea that housing is a means to create wealth as opposed to simply a place to live.
That’s easier said than done, as China’s president, Xi Jinping, has found. He has been banging on about this for five years, saying that housing is not for speculation but for living in, but no one seems to be listening in China, and no one would be listening here either if the prime minister was saying the same thing. But anyway, he’s not.
The growth in the value of Australian land has fundamentally changed society in two ways. First, generations of young Australians are being held back financially by the cost of shelter, especially if they live somewhere near a CBD and especially in Sydney or Melbourne; and second, the way wealth is generated has changed. Education and hard work are no longer the main determinants of how wealthy you are; now it comes down to where you live and what sort of house you inherit from your parents.
It means Australia is less of an egalitarian meritocracy. Material success is now largely a function of geography, not accomplishment. Moreover, the geographic wealth gap is being widened by climate change, as floods and bushfires make living in large parts of the country uninsurable and financially crippling, but many families have no choice except to stay where they are because those areas are low-priced and they can’t afford to move.
The houses we live in, the places we call home and bring up our families in, have been turned into speculative investment assets by the 50 years of government policy failure, financialisation and greed that resulted in 25 years of exploding house prices. The doubling of prices as a proportion of both average income and GDP per capita has turned a house from somewhere to live while you get on with the rest of your life into the main thing, and for many people a terrible burden.”
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