Cross-posted from LF Economics:
A fascinating aspect of the Great Australian Housing Market Bubble is that most of the price growth has occurred under LNP governments, not ALP.
From 1986Q2 to 1996Q1, housing prices, adjusted for inflation and quality, increased by a paltry 9.1% over the course of the ALP government. This amounts to a less than 1% annual increase in housing prices over a decade-long period. Although a small housing cycle occurred during the late 1980s on the back of the enormous commercial and industrial real estate bubble, it deflated slowly throughout the early 1990s recession, reaching a cyclical trough during the mid-1990s.
Enter the Howard government. Prices escalated by 121.4% between 1996Q1 and 2007Q4, driven by the exponential increase in mortgage debt. While subject to much commentary, the price rises were clearly not opposed by government, industry – particularly the FIRE sector – home owners and property investors.
The contribution to price growth by government is as follows (red = ALP; blue = LNP):
ALP: 9.1%
LIB: 121.4%
ALP: -0.4%
LIB: 31.0%
When the ALP regained power, they were hit almost immediately by the GFC which began in 2007, although it took until mid-2008 for the crisis to hammer capital markets. As debt acceleration plunged temporarily, so did prices.
The Rudd FHOB and the extensive backdoor bailout of the banking and financial system saved the housing bubble, leading to another rise in housing prices during the latter half of 2009 and into 2010. Prices reached a new peak in the latter year. After this burst of irrational exuberance, debt acceleration again moderated, leading to dwindling price growth between 2011 and 2012.
This period was also the height of the mining sector investment and construction phase, so it helped to mitigate the loss of demand stemming from the fall in household debt. Between 2007Q4 and 2013Q3, housing prices decreased by -0.4%.
With the re-election of the LNP, prices rapidly jumped once more, especially in Sydney and Melbourne, while the rest of the capital city housing markets remained steady. The gargantuan asking prices for the two major cities have reignited the debate about the housing bubble, which vested interests predictably deny.
From 2013Q3 through to the latest data point (2016Q4), prices have risen by 31%. Recent ABS data demonstrates the housing market is experiencing runaway price growth, driven primarily by another cycle of debt acceleration and also a minor contribution by foreign investment.
Under LNP leadership, Australia experienced an astounding 95% of the total price growth of 161.1% that occurred between 1986Q2 and 2016Q4. This has richly rewarded their campaign contributors and the FIRE sector.
With a small number of powerful FIRE sector lobby groups and participants holding more influence on government housing policy-making decisions compared to all Australians under the age of 35 combined, the obligation is to implement policies intentionally designed to increase demand i.e. using super for a deposit and to allow owner-occupiers to obtain mortgage interest deductibility. Only time will tell if these policies will be implemented. Unfortunately, state governments, whether LNP or ALP, are hardly better.
Given the reality that most housing purchases are done so with debt, interest rates and wage growth must be incorporated along with prices to obtain a more accurate assessment of housing affordability. Currently, nominal wage growth is at its lowest since WW2 and mortgage interest rates are rising.
Thus the only pathway towards superior affordability is to reduce prices, which the government steadfastly opposes. This was demonstrated by the recently published Parliamentary Home Ownership inquiry report which yielded no recommendations.
For the rest of the LNP’s term till 2019, we should only expect more complacency on tackling housing affordability. History suggests the LNP only have one housing policy: price inflation.
While the ALP’s approach in opposition is to advocate superior housing affordability policies, their swift attempts during the GFC to bail out the FIRE sector has played an instrumental role in pushing Australia’s economy further into financialised casino capitalism.
Assuming the data collected from the ABS is accurate, and given the rapid rise in the property investor mortgage debt accelerators in NSW and VIC, we should expect prices to continually grow above fundamentals – inflation, income, construction costs, rents, GDP, etc. – into the near future.