A major political battleground in the most recent federal election was the affordability of housing.
Although the Coalition and Labor have rather different policy philosophies regarding how to deal with the housing crisis, the two major parties’ fundamental stances are essentially the same: they oppose dropping home prices.
It is exceedingly difficult to try to keep the price rise of an asset at a very specific level over several decades, as any economist will tell you. This is especially true for an asset like Australian housing, which has been characterized by boom-bust cycles for over a century.
A home is deemed affordable for a family when the payments for the mortgage account for 35 percent of the average household’s gross earnings. This figure is notably above the usual benchmark of 30 percent of gross income.
-For our analysis, we will consider mortgage interest rates reduced to 4. 75 percent, reflecting a decrease of about 1. 4 percentage points from their current position. This figure is considerably below the standard variable rate of 5. 9 percent available to homeowners, based on data from the RBA covering the 15 years prior to the pandemic.
The assessment will take into account the median income household for each capital city, presuming that they possess a 5 percent deposit along with funds reserved for stamp duty, conveyancing, and various other transaction expenses while purchasing the median-priced home.
Under these conditions, Sydney, the largest city in the nation, is projected to achieve our specified affordability benchmark by the year 2096.
Is this realistic?
Regrettably, this is not a mistake, as it will take approximately 71 years for the median household to manage the cost of the median house in Sydney.
On a more optimistic note, the situation in other parts of the country is somewhat improved, although still far from ideal. Among the capital cities, Perth is set to be the first to attain affordability in this context, expected to occur in 2049, which is 24 years from now.
Although rising wages outpacing housing costs year after year, and decade after decade, seems the most favorable political choice, from a practical standpoint it isn’t truly feasible.
Even in a scenario where it could work most of the time, just one year of skyrocketing housing prices could completely reverse a decade’s worth of advancement towards making homes more affordable.
Despite the possible political repercussions, the simplest method to achieve widespread affordable housing throughout the country is to lower property prices.
This situation has already unfolded somewhat unintentionally across the Tasman in New Zealand.
Since reaching their peak after Covid, housing prices in New Zealand have decreased by 17. 5 percent nationally, dipping 22. 1 percent in Auckland and 25. 1 percent in Wellington.
Yet, even with a common belief that such a decline in housing prices brings about significant negative consequences, the reality has been largely muted rather than tumultuous.
Ultimately, a reduction in housing costs and an increase in affordable homes could be realized relatively quickly if the political resolve existed among the main parties to facilitate this change by adjusting factors to effectively decrease demand and boost the availability of homes on the market.
However, both the Coalition and Labor have made it very clear that this stands in stark contrast to their intentions.
