One of Australia’s most respected financial experts wants the Australian government to halt house price growth for 20 years to fix the nation’s housing crisis.
Australia is currently battling increased property prices, rocketing rentals and a public housing shortage as the nation’s housing crisis continues to worsen in every major city, making it ever more difficult for average Aussies to own a home.
This has made stepping onto that first rung of the property ladder harder than ever, with the price of housing rising from three and a half times the average annual salary to eight times in just over two decades.
That growth has led to Sydney becoming the second most expensive place to buy a home worldwide, only beaten by Hong Kong, while renters in some major cities are forced to blow up to 50 per cent of their weekly income on rent.
The great divide
Experts warn the crisis is cultivating a growing inequality within Australian society – between those who own a home already – and those who don’t.
ABC News presenter Alan Kohler is one of Australia’s most trusted finance experts and financial authors – he has now weighed in on the current crisis, offering his unique insights and thorough analysis through the latest edition of Quarterly Essay.
Written with correspondence from some of the nation’s brightest legal, political and sociological expertise, including former Prime Minister Bill Shorten, “The Great Divide” sees Alan Kohler tell the story of Australia’s housing crisis origins and how we can get out of it.
Alan told Build-it that there were several reasons why the ratio of house prices to individual incomes had more than doubled in the last 23 years, with one of the catalysts being the Howard government’s halving of the capital gains tax in 1999.
“That capital gains tax discount with negative gearing is an issue,” he told Build-it.
“Any attempt to deal with housing affordability has to start with that, as that seems to be the thing that happened when the problem began.”
Property price targets needed
Alan says the first steps to get the country out of the housing mess would require the government to identify specific targets on property prices and reduce the speed at which they are rising.
“Most policies have an explicit aim, but housing policies don’t have specific aim outside of trying to outbuild the problem,” he told Build-it.
“The first thing that has to happen is housing policy has to have an aim the same way as climate change, which has a clear, precise target of reaching net zero carbon emissions by 2050.”
He believes house prices must increase slower than individual incomes for more than two decades to bring back parity and solve the housing crisis.
“On average, house prices have increased at six per cent compound per annum since 2000, but that increase in house prices now needs to be lower than four per cent per annum for a long time,” he told Built-it.
“This will help get the house price to income ratio back to what it was.”
Mr Kohler says a cap on property price increases, or policies to achieve such an effect, would likely prove unpopular with homeowners and investors but is an essential step for the country’s future.
“If the house prices keep rising and it remains how it is, we are in big trouble,” he warned Build-it.
“We have embedded in this country a house price inflation expectation that needs to be purged.”
“The best thing to be achieved is for the annual increase in house prices to fall a bit to at least an average of four per cent.”
Quarterly Essay’s “The Great Divide – Australia’s housing mess and how to fix it” is available is in store now, available in paperback and digital format.
