Sustainabili-Dit

Words by Kyle Scott and George Young

Housing! It seems that the housing crisis has finally come to the forefront of everyday economics. Housing, is essential for any economy to provide a productive and satisfied population, not to even mention the ethical fallout that occurs from a lack of housing. Looking at the current market, it wouldn’t be uncouth to say that Gen Z are faced with a distinct dilemma - how to get on the property ladder when prices only go up and up? How can we expect to own a home like many of our parents when the only people who seem to be able to enter the market are overseas investors and upper-middle class developers?

House prices have been rising abruptly in Australia since 1996, at a rate that’s clearly detached from inflation. But why? Let’s take it back to supply and demand. Zoning regulations are controlled by state governments and are crucial for city planning and expansion. Appropriate zoning leads to stronger residential communities and more efficient industrial estates, while also considering the environment (such as the Parklands).

What zoning doesn’t do is allow for property development to expand. Instead, it restricts the supply of new housing at the discretion of local governments. With supply fixed in the short term, how does demand come into play? With interest rates at an all-time low, mortgages are more accessible than ever. This attracts property investors both here and overseas, looking to make a profit in the rising market. Increased house prices make people feel like they are wealthier, so they consider buying another property. Government stimulus such as the First Home Loan Deposit Scheme (FHLDS) puts cash in the hands of first home buyers. These factors together increase the demand for homes, but zoning restricts the supply.

In the peak of the pandemic, we are living through an ‘unprecedented’ property market, and despite efforts over the last decade, we aren’t any closer to finding an alternative to affordable housing for the average Australian. In 1990, the average wage in Australia accounted for 14.8% of the average house price, yet using the same benchmarks 31 years later in 2021, the average wage will only account for a mere 6.37% of the average house price. When nullifying the effects of inflation, we see it is marginally more difficult to own a home in 2021 than it was in 1990, the time of baby boomers snapping up houses left, right, and centre. When the free market fails, domestic economies require the interference of the government to set the market back in the right direction, which both federal and state governments in Australia have attempted, utilising schemes such as the aforementioned FHLDS (federal) and the First Home Owner’s Grant (FHOG) (State).

The FHOG, introduced in the 2000s, was intended to assist young people who would have otherwise never owned their own home. The scheme initially offered a $7,000 grant. In 2022, the FHOG now offers a $10,000 grant, a 42.8% increase from its initial figure which fails to keep up with the average house price rise of 241.7% since 2000. The high prices of housing has significant social ramifications that damage the longevity of the Australian economy. Young people staying at home with their parents for longer, delays them

starting their own families and ultimately results in smaller family sizes and a decrease in population growth. With an ageing population, this could have serious longterm ramifications, as young taxpayers are supporting older communities.

The future of the Australian housing market seems relatively uncertain with experts having predicted a “bubble burst” for over a decade now. The war in Ukraine has seen a rise of oil prices, a major factor of production, which coupled with uncertainty in the global market could lead to inflation. The RBA has announced it will increase the cash rate in the next couple of months to help mitigate this risk of further inflation. This in turn will increase the big bank’s interest rates (the cost of borrowing money), thus making it harder and harder to get a home loan.

If this occurs and housing prices are driven down, then it will be desirable for you and me, the uni student still living with mum and dad. But how does this affect those who already have mortgages? If house prices decrease then people with mortgages will see their loan become worth more than their house, resulting in a phenomenon called ‘negative equity’. Negative equity is bad news, leading to mortgagees defaulting on their home loans, similar to occurrences of the 2008 Global Financial Crisis. Mortgage defaults cause houses to go back on the market, leading to…

to increase the supply of residential land, through state governments relaxing their strict zoning laws. This has been seen effective in areas like Mount Barker, and more recently, Virginia. This would: 1. Increase the supply of housing and 2. Control population density within the city.

In a world full of uncertainty and pessimism, it is difficult to say with certainty whether the current university student can afford buying a house in the near future. But through an increase in interest rates, the availability of new land and appropriate government intervention, we might be alright to live the Australian dream.