Why are young Australians excluded from home ownership? The answer is politics | Intifar Chowdhury
HHomeownership is a much-revered Australian milestone, a marker of independence in adulthood and a key to economic security. However, today the big Australian dream of owning a home in your twenties is not for everyone.
I used to watch real estate prices skyrocket with blinking horror; now I’m not watching. Even confinement could not slow the pace. House prices have continued to soar beyond our reach, further dampening the home aspirations of young Australians.
Homeownership rates have been plummeting since the 1980s in a country that once boasted of being an egalitarian society. With the intergenerational decline in stable income and the skyrocketing debt-to-income ratio, young people and low-income people have been gradually locked out of the real estate market.
As a result, many young adults share rental homes or move in with their parents out of economic necessity. Ownership is becoming more and more hereditary; something that was achieved is more likely to be inherited by those who comes from money.
A global pandemic has exacerbated matters. With closed borders and strict confinements, the concept of “home” has expanded to include work, school and all other aspects of society. The growing importance of a well-spaced home has given an already booming real estate market a boost.
As a result, more of us are renting in droves and sighing heavily at the diminished prospect of owning a home. Perhaps a few years ago, there was a time when the advice “Stop buying smashed avocado for $19 and four coffees for $4 each” brought a youngster closer to a house deposit. Now, it will take us many more years of sacrifice for this advice to bear fruit.
However, not all young people can afford avocado toast in a trendy cafe.
The housing affordability crisis is primarily causing housing stress among low-income youth – the real losers. High housing costs such as rent payments limit expenses on other essentials – food, health care and education – and deprive disposable income of many aspects of well-being.
But what is causing the real estate frenzy?
Last year house prices increased by 24% in some parts of the country.
Second, investment incentives such as capital gains tax cuts and negative debt concentrate more housing in the hands of investors and less in the hands of first-time homeowners.
Third, the property market has been incredibly resilient to Covid-induced economic disruption due to stay-at-home orders during extended lockdowns and Australians investing in impermeable borders.
Together, strong demand and weak sales have increased competition, further fueling asset prices. Competitive spirits and FOMO sentiments among knowledgeable buyers have also pushed house prices to unabashed heights, particularly in Sydney’s inner suburbs.
Why is the housing market a complex code to crack?
The answer is simple: politicians believe that rising house prices produce more economic winners than losers among their constituents.
Indeed, Treasurer Josh Frydenberg noticed in june that the increase is good for the economy. The federal government has expressed its lukewarm sympathies to those struggling to set foot in property for the first time, while happily pointing out that many households are to earn continued house price inflation. Therefore, price hikes are here to stay because simple solutions — like building more homes and taxing real estate investments properly — aren’t as politically sound.
It’s the reality of things: those with power and money have more impact on the market than those without. This is why winners become bigger winners and losers keep losing.
What we face today is not an insoluble crisis, but there is an unwillingness to resolve it among those in a position to do so.
Two things we can do: investments + elections
Economist Saul Eslake predicted home ownership in 2021 among Australians in their 20s and 30s will be lower than the 1947 census. Demand for new homes, scarcity of supply and rising prices for vacant land will continue of upward pressure on real estate prices in the years to come. The prices should ascend, despite RBA Interest Rate Corrections and one fall housing sentiment among real estate professionals.
It seems that the younger generations are succumbing to a natural sense of fatalism and reluctantly submit to this intergenerational flight. Very few people in their 20s and early 30s are actively planning their housing future, while the majority of Australian voters to believe price spikes will be bad for the next generation.
There are two things we can do. The first is a personal solution, while the second involves collective action.
Investing, or earning a profit by putting money into financial programs, is another way to build up the deposit nest egg and/or generate “annuity” money. While it’s hard to make informed investments because understanding the market and picking the right stocks takes time, diligent research is increasingly leading millennials toward conservative investments in mutual funds (ETFs) while a handful are exploring the highly volatile but hugely lucrative world of digital currency.
The second (and somewhat blunt) solution is to make informed economic voting decisions. To do this, it is important to follow the political speeches of political parties and candidates to understand how their policies affect our financial future. For example, in the 2019 election, the Liberals campaigns against the “housing tax” – a policy that Labor abandoned after losing the election. Labor wants to cut tax incentives for investors, which the Greens want to scrap altogether. But changes in investment policies will not be a silver bullet.
On the other hand, it is important to research the financial programs in place to help young people deal with both the housing affordability crisis and the homeownership crisis. We know that Homeownership programs are not enough and despite the federal government home loan guarantee, homes continue to be out of reach for first-time buyers. Overall, the upcoming elections in 2022 are crucial for action.
Overall, the most important thing is to try to understand why the real estate market is skyrocketing and what this means for us in the short and long term. This will help us plan and act accordingly to minimize economic stress. It may seem like a complex minefield, but passive acquiescence, or worse political apathy, will not help us.