The death of Australian home ownership

By Leith van Onselen

The Australian Institute of Health & Welfare (AIHW) has produced a new report showing how the dream of home ownership is out of reach to growing numbers of Australians as the nation grapples with a chronic lack of affordable housing:

Over the last 20 or so years Australia has seen a shift from outright ownership to owning with a mortgage, and a shift from overall home ownership to private rental (SIH data: Figure 1.1). Between 1994–95 and 2015–16, the proportion of outright owner-occupied households fell from 41.8% to 30.4%. Comparatively, the proportion of households owning with a mortgage has increased, from 29.6% to 37.1%, over the same period. Overall, the proportion of households in home ownership fell from 71.4% to 67.5%. There has also been an increase in the proportion of households renting privately (from 18.4% to 25.3%), and a decline in the proportion of households renting through state and territory housing programs (from 5.5% to 3.5%)…

Figure 1.2 displays home ownership rates reported in Censuses in Australia between 1971 and 2016, by selected 5-year age groups. The home ownership rate of 30–34 year olds was 64%, and 50% for 25–29 year olds, in 1971. Forty-five years later these rates have decreased notably, with the home ownership rate of 30–34 year olds falling 14 percentage points to 50%. Similarly, that of 25–29 year olds fell 13 percentage points (to 37%). While declines are evident for other age groups they are much less marked.

Fewer Australians are tending to own their home at retirement. For Australians nearing retirement, for example, age groups 50–54, 55–59, and 60–64, home ownership rates peaked in 1996 at 80%, 82% and 83%, respectively (Figure 1.2). Since 1996 however, there has been a gradual decline in home ownership rates, most notably in the 50–54 age group which has seen a 6.6 percentage point fall over these 20 years (from 80.3% to 73.7%)…

Despite changes in housing tenure over time, home ownership is still the most common tenure type in Australia, as it is in many other Organisation for Economic Co-operation and Development (OECD) countries and European Union (EU) member states [9] (Figure 1.3)…

While Australia ranks in the lowest quarter in terms of aggregate home ownership rates (twenty-ninth out of thirty-seven countries), it ranks in the top third for home owners with a mortgage (twelfth) (Figure 1.3)…

Based on the OECD’s price to income ratio index, housing affordability in Australia has broadly declined since the early 1980s, and the demand for sustainable, affordable housing continues to grow [11]. This demand puts pressure on dwelling prices, with a particularly adverse effect for low-income households. A number of factors influence house prices, such as interest rates, population growth, availability and release of land, and building approvals; therefore affecting housing affordability. House prices in Australia have increased substantially in recent decades…

In recent years across Australia, the stock of social housing, which includes both public rental housing and community housing, has not kept pace with growth in either the overall national dwelling stock or the number of households.

The share of all dwellings in Australia accounted for by public rental housing (this does not include community housing) rose from 1981 to 1996 but has fallen since 1996… The number of social housing dwellings per 100 Australian households has declined from 5.1 per 100 households in 2007–08 to 4.6 in 2016–17 (Figure 1.5)…

What strikes me about the above is that Australia’s rate of home ownership is actually low by developed country standards. Other than that, there’s nothing in this report that we don’t already know.

If Australia’s policy makers genuinely wanted to ‘fix’ the housing affordability issue, they would tackle the following demand and supply-side distortions:

  • Normalising Australia’s immigration program by returning the permanent intake back to the level that existed before John Howard ramped-up it up in the early-2000s – i.e. below 100,000 from 210,000 currently [reduces demand];
  • Undertaking tax reforms like unwinding negative gearing and the CGT discount [reduces speculative demand];
  • Tightening rules and enforcement on foreign ownership [reduces foreign demand];
  • Extending anti-money laundering rules to real estate gatekeepers [reduces foreign demand];
  • Banning borrowing into property by SMSFs [reduces speculative demand]; and
  • Providing the states with incentive payments to:
    • undertake land-use and planning reforms, as well as provide housing-related infrastructure [boosts supply];
    • swap stamp duties for land taxes [boosts effective supply];
    • reform rental tenancy laws to give greater security of tenure [reduces demand for home ownership and reduces rental turnover]; and
    • force developers to supply housing for lower income earners via inclusionary zoning [boosts supply of affordable rentals].

Sadly, policy makers have no intention of actually fixing the problem and instead resort to policy band aids, like first home buyer subsidies, which make the situation worse and are designed as a new profit centre for the property industry.

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Unconventional Economist

Comments

  1. The only question left seems to be whether the current housing market falls wind up improving affordability and hence see investors swapped out for occupiers or not.

    • It’s pretty obvious if you think about it. Boom or bust it seems the common theme is home ownership dropping. Has there been any developed country that has increased home ownership?

      • I believe all Anglophone countries increased home ownership in the 1950s, leading, in Australia, to a peak in home ownership about 90-100 years after the 1890s bust.

  2. reusachtigeMEMBER

    How can it be the death of home ownership when all the important people I know own many homes each?

    • Given the people living in the “communally owned” homes were probably given them outright when private ownership became a thing, it would seem pretty likely to result in that.

    • When the Soviet Union collapsed people essentially owned the homes they lived in, mortgage free. There were people on waiting lists at the time so not everybody received a “free” flat. The younger generation these days, if not inheriting a flat, are lumped with mortgages like those in the West. Add in the cultural differences with family units, it’s not really comparable with Australia. The ability to save to buy a home is probably more common than in Australia.

      A few hazards exit though with the transition. If you don’t have the proper paperwork you can own a place but not sell it. If it was in a desirable location the local mafia could take an interest and make you “disappear”.

    • Sort of but its a bit of a mixed bag.
      The Scandinavian countries have low rates of ownership despite being much more socialist.
      You could say that lose credit of capitalist economies is causing lower rates due to high prices but places like Germany don’t have the huge household debt issues like others and moderately low house prices, so their low ownership rates are more to do with favourable renting environments.

  3. Governments don’t want to fix any crisis, they want the crisis so they can get re elected by blaming the government who they say caused the problem
    No government will prevent any crisis ever
    The funny thing is that the winners over the next 10 years will be renters – I think in 2028 you’ll look back and say will say you are a loser to be an owner
    Wait until they bring in land tax on owner occ properties, you won’t be able to sell and you’ll have body Corp rates and land tax
    You won’t be able to give away your property in 10 years time
    You won’t be able to give away your home in 7/10 years time

    • Especially when you consider that as voters who own a home become outnumbered by home owners who own no real property, giving property owners a kick will be an easy populist vote winner.

      • Policy that favours the masses, or policy that favours the wealthy?
        Which do you think government will go with?
        Which have they gone with previously?

      • Whichever is easiest and whatever will keep them in power – what they have gone with in the past and what they will go with in the future.

        Sure, they have often gone with policy that favours the wealthy – but they have always sold it as policy that favours the masses. NG is a case in point – always sold by its spruikers as how the masses – ‘mum and dad investors’ – can get ahead, never as what it is – a way that someone who already ‘has’ can get some more. Worked fine when renters were small in number or mostly student layabouts. Doesn’t work as well now its common for people to raise their kids from birth to uni in rental housing.

        The point is their ability to hide the truth on that one is being eroded and landlords are less likely to be seen as Aussie battlers and more likely to be seen as people who are already way in front. Hence why some State Premiers have used changes to legislation to favour renters as a populist move and why the ALP at the Commonwealth level is spruiking cuts to NG

  4. There is no incentive to fix this because the housing valuations are what’s underpinning the debt of this country and maintaining its CAD; the crash will be a lot of short term pain. Also this is what happens over time as capital compounds and population in a given region keeps increasing; land gets owned by a concentrated few who are able to use the economic rent to purchase additional land. Population increases keep a steady stream of renters.

    • That’s why we should have a progressive tax system for owners of multiple properties. The first investment property is taxed at your marginal rate (in terms of rents earned) your second is double that rate, third double again… That way people are disincentivised to own multiple properties and look at other options like investing in small businesses.

      • There is problems with that of course. When I want to buy two investment properties I will upgrade my existing one to one in a higher area instead of buying a second smaller one under your scheme. Value of property matters more than the number of them. The current system already does this to a small degree; its better for me CGT wise if I put all my money into the house I live in vs have two smaller properties as I get an exemption on my PPOR – I personally think it should be capped to a certain house value not number of properties. Lets be honest; what investors are buying/betting on is capital growth and land ownership consolidation where the existing people own the land available but we keep getting new people in – as long as that bet is valid at least in nominal terms property is more solid than most people on this site think in the long term.

  5. I’m a late career professional in the top couple of percent of income earners. I also have a shitload of cash on hand from half of the proceeds of the sale a few years ago of a huge suburban home on a huge block of land in a nice suburb. But the amount of money I have, multiple hundreds of $K won’t even let me buy a gunyah outright, let alone a decent place to live so if I want to buy a place, I need to get a huge fcuking mortgage as I’m heading towards retiring.

    If my situation is so stuffed up, I can’t imagine how others have been coping. Well…lots of people have obviously going massively and unsustainably into debt with bullshit liar loans so that they can have a place to live, in the hope that inflation and time will sort things out for them. In a declining market and with no wage growth, I wonder how that’s gonna work out for them.

    In the meantime, I continue to rent, and enjoy the red numbers on the Corelogic daily update.

    • I’m like you, but I assume younger at 36? Fat was of cash ready and waiting. While I rent some dump to save as much as possible. Absolutely 0 debt (no student loans) no car loans, no credit cards etc.. the missus does have student debt. I was thinking of paying it off for her. Just so as a unit, we have 0 debt.

      I hate renting, but I’d hate a huge mortgage that forced me to get up each day in fear I’ll loose my job. Today I woke up feeling unwell so called in sick. But if I had a huge mortgage I’d be scared to call in, no matter how bad I felt.

    • @OP same as us. It’s hard to wait but I suspect doing nothing is a good strategy right now. There’s some barely suppressed panic in the workplace when organisational change is hinted. A few folks are one pay from serious problems.

      • Qualifying that comment, I’m not in top 2% but still on a very decent income. I’d hate to be servicing a debt from hell. The freedom of having no debt is nice despite some fairly minor downsides.

    • I think this is the frustrating thing. Bunch of people on this site, sitting with 6 figures in cash, high incomes, and no debt, and still can’t buy a decent place without taking on dangerous amounts of debt. The sums don’t add up. This MUST be the mother of all housing bubbles.

      • rj2k000MEMBER

        All you cash horders can give the banks’ property bubble a huge kick in the guts by buying assets outside the banking system.
        Your funds are leveraged 20x to allow borrowers to bid up property prices against you.

  6. Diogenes the CynicMEMBER

    I am looking out of my window at the neighbour’s house which has a crew of workmen fixing the roof, gutters and rotted inside beams from water damage from previous lack of maintenance. Given it is their sixth week of work I estimate that costs of repair are probably headed into the $20-40k bill range. Oh the joys of owning! I’m renting next door.

    • Lol yep, when the toilet blocked up landlord came around to unblock it. Had to deal with my crap for a change haha. Houses need money spent on them. Land doesn’t. But when land stops increasing in value look out!

    • Take time to look at your favourite real estate site at an empty block of land at 33 Moray St.
      New Farm ( Brisbane ).
      Yep, it sold for $11.3M. That’s for a tad over 1,000 sq. metres. ( it was on the TV news )
      Both sides of the block face walls of highrise units, so the only view they will ever have is to
      the South towards the river. It will be interesting to see what the new owner builds there.

  7. I’m an early career professional in Perth, and I cannot wait for the ass to fall out of the perth market in the coming 12 to 24 months so I can finally afford to buy a house at a reasonable multiple… 11 years ago I decided against it, pretty bloody glad I did!! Bring on spring! thank you royal commission, thank you rising interest rates, thank you tightening lending standards, thank you expiration of I/O lending…

    • In Perth I’d wait for a reasonable enough trough which is definetely not there yet but if you’ve got a good deposit if the price is right and you buy off a desperado seller i’d still buy. Most ppl here are dreaming of house prices going back to y2k levels which is possible but what’s also possible is another reflation with QE for the masses etc. Govts need inflation to pay off their own debts. I bought in i think it was 08/09, I saw prices fall hard from pre gfc levels for about 6 months then they began to pick up again. I still thought things were overpriced and my job security wasn’t great but took the plunge as I had a good deposit. Never anticipated what came next. Don’t know what to expect now either.

      • rj2k000MEMBER

        All you cash horders can give the banks’ property bubble a huge kick in the guts by buying assets outside the banking system.
        Your funds are leveraged 20x to allow borrowers to bid up property prices against you.

  8. Ok, just went to an open house in the northern suburbs of Sydney just to get a feel of the market. It was the first open house. Not one other person was there. The Realestate agent admitted that times were tough and houses were getting harder to sell. Made me feel good inside

    • Mystic MedusaMEMBER

      I was in an Uber today – Eastern Suburbs of Sydney – driven by a gentleman who said he had (up until recently) been “a real estate agent and an auctioneer on the weekends.” I got the impression he was still an auctioneer and you could tell he would be rather good at it, booming delivery and self-assured, reeking of Eau Sauvage. Anyway, he said “the media keeps saying housing is down five percent – it’s not true. Take it from someone at the coalface, it is already down 15%” He said he was thinking it would
      “kick up again” next decade.

  9. The govt still wants home ownership, as in go out and get sh!tloads of debt. What they don’t want are masses of people with a paid off home. These people won’t work till 10 at night for no extra pay. They want debt slaves and that is the new form of modern slavery. Where is the true left not those fake green tossers? Crickets

  10. Jumping jack flash

    Want a house? You just need a bit more debt than the last person…
    And find a bank willing to give it to you.

    • What does the banks’ new policy of offering progressively less debt than the last person say about the direction of house prices?

  11. So gradually Australians have been, in real terms, borrowing extraordinarily more but owning less.

  12. For me Australia’s fascination obsession with housing is really the result of a lack of true investment alternatives. Imagine Sydney was a high tech hub creating hundreds if not thousands of global tech companies, creating the stars of tomorrow. If this were true would everyone still care so deeply about housing or would housing lose its luster and revert to simply being shelter.
    All I see in Australia is the very visible hand of the housing industry pushing for higher prices and 70% of the population cheering each and every success, one thing is certain : It won’t end well, but I suspect it won’t end at all until most Australian’s see far better alternative investment choices escaping them because they have all their wealth tied up in providing shelter for themselves and others.

  13. I worry that without closing the China loophole, they will initially be frightened for a while, but then, still, we’re cleaner / better than China, they’ll pour their money back in, en-masse, for those ‘lovely Australian bargains!’

    We’re all jobless from the credit crunch, we can’t afford a house, despite the new lower prices, the Chinese take care of that problem, by taking them off the market.

    The government still wins. We’re getting hammered by disgusting policies.