We’re back to record real estate price growth, so what do we do?
Australian homeowners are on the lookout, according to the Federal Treasury.
- The house price-to-income ratio has risen from 2.5 in the early 1990s to more than six today.
- People under 40 are now less likely to own a home than at any time since 1947
- The average price of a home is now $ 835,700, up from $ 678,500 a year ago according to ABS
“The real estate price / income ratio has indeed increased,” Crystal Ossolinski, director of domestic demand at the Treasury, told a parliamentary committee on economics.
“In the early 90s you watched 2.5 times, and now you watch just over six [times]. ”
It just means that Australians are borrowing sums of money far more than their annual income, which is fueling the rise in house prices.
Treasury and Reserve Bank officials faced a parliamentary committee on Tuesday to fight what is driving record growth in house prices and what can be done about it.
The House of Representatives Economic Committee has learned that the debt-fueled housing boom has meant people under 40 are now less likely to own a home than at any time since 1947.
And it was only getting worse for millennials, said Deputy Federal Treasury Secretary John Swieringa.
Mr Swieringa acknowledged that recent government policy measures aimed at blowing early buyers into the market had boosted demand, but did not say they reduced housing affordability.
“And so we are looking at some of the government programs like the First Home Loan Deposit Scheme, the First Home Super Save Scheme – these programs help people cross the deposit threshold,” he said.
High prices and high demand
Labor committee member Matt Thistlethwaite rejected this.
Residential real estate prices rose 6.7% in the June 2021 quarter, the strongest quarterly growth since the start of the residential real estate price index series in the September 2003 quarter, according to figures released today by the Australian Bureau of Statistics (ABS).
The average or average price of residential housing is now $ 835,700, down from $ 678,500 a year ago, according to the ABS.
In a preamble to a question, Mr Thistlethwaite accused the government of having “engineered” the spike in house prices.
The committee heard that 200,000 homes had been approved for construction in the past 12 months, and this additional supply would help dampen price growth.
But that does not solve the problem.
So what can we do now?
Mr. Swieringa of the Treasury indicated that changes in stamp duty (at state government level) and reform of zoning and planning laws (at local government level) were possible ways to improve the affordability at the margin.
Reserve Bank research shows that local and state government policy reforms can improve housing affordability, but only slightly.
Independent economist Saul Eslake is the Vice Chancellor of the University of Tasmania.
His study of the real estate market also confirms this.
He said the key to dramatically improving housing affordability was both increasing the housing stock for those who could least afford home ownership (social housing) and removing government stimulus measures. federal.
“Specifically, [remove] high cash subsidies to future home buyers that end up in the pockets of sellers; and tax preferences that allow real estate investors to set aside future home buyers, ”he said.
In the 2016 federal election, Labor announced it would reduce negative debt, a policy that prompts real estate investors to make loss-making investments for tax purposes.
Labor quit politics earlier this year.
So what are we missing?
The Reserve Bank highlighted the enormous influence that the sharp increase in population had on the real estate market from 2005 – causing prices to rise dramatically.
But the key to soaring house prices, Deputy Governor Luci Ellis said, were record interest rates and the challenges of building a deposit.
“As people’s ability to pay off mortgages increases, their ability to pay a higher price increases, but it means [home buyers] need to accumulate a larger down payment, ”she said.
“And so it just takes longer to accumulate a down payment than before, and not everyone is able to do it easily, especially in an environment where a lot of young people have precarious jobs.
“And so, it becomes less accessible to low and middle income households to accumulate that deposit and qualify for a mortgage.”
Financial markets had taken interest rate hikes into account as early as next year, but on Tuesday afternoon RBA Governor Philip Lowe watered down any suggestions that would be lifted before 2024.
But it will undoubtedly be good news for heavily indebted households across the country.
The Reserve Bank also monitors bank lending standards.
In the statement outlining the latest monetary policy move, Dr Lowe said growth in home loans has accelerated due to stronger demand for credit from homeowners and investors.
“With rising house prices and low interest rates, the bank is carefully monitoring mortgage trends and it is important that lending standards are maintained,” he said.