A new report into Australia’s housing market claims it is dysfunctional and a ‘time bomb’, and has called for a royal commission to tackle the problem before it damages the country’s economic future.
The Housing: Taming the Elephant in the Economy report from the University of NSW (UNSW) explains that soaring house prices are driving inequality and damaging productivity.
According to the report, national household debt has more than doubled over the past three decades, from 70 per cent of GDP in 1990 to almost 185 per cent in 2020, exposing a ticking economic time bomb should interest rates rise in future.
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In addition, house prices, which have increased by 10 per cent in the year to April 2021, are forecast to rise up to 14 per cent in the coming year, putting homeownership further out of reach for many.
Lead author of the report Professor Duncan Maclennan said Australia’s current housing system is dysfunctional at all levels and an inherent risk to the Australian economy, and called for a royal commission to tackle the problem.
“Australia’s approach to housing policy has fuelled income and wealth inequality and created significant economic instability,” Prof. Maclennan said. “This is becoming a huge drag on productivity, and warping Australia’s capital investment patterns.
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“The scale and complexity of the problem demands [in particular] that a royal commission be established to investigate how to defuse the time bomb and create a more effective and equitable market for all Australians.”
The surging property prices may be good for many older Australians who own their own home, but they are often unable or unwilling to access the equity in their home, which isn’t exactly helping their retirement situation.
The report recommends switching housing stimulus efforts to support the social rental sector, which potentially would also lessen inflationary consequences in the immediate term.
“The commonwealth government’s policy actions are boosting inflationary pressures, and the RBA has effectively washed its hands of responsibility for house prices, arguing higher prices are good for the economy,” Prof. Maclennan said.
“But when people are paying more and more for rent and to service their mortgages, they have less and less to spend on other goods and services.”
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The report also highlights the economic case for building more affordable housing and shifting from policies that inflate the demand for housing to ones that expand supply.
The report noted that housing stock is valued at an estimated $8.1 trillion, while housing construction accounts for 5 per cent of Australian jobs, and more focus needs to be put on securing the sector.
“The commonwealth is right to highlight sluggish housing supply but wrong to assume that state and local planning is the cause,” Prof. Maclennan said.
“Shortages of infrastructure, skilled labour and raw materials all matter too.
“States do need to audit housing supply chains and bring all their powers to bear to make them faster and more flexible.”
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