Australia’s soaring house prices pose a “threat” to the nation’s economic future, driving inequality and damaging productivity, a new report suggests.
Major reforms are needed to stabilise the housing market, including a royal commission, based on findings from the University of New South Wales Sydney’s City Futures Research Centre.
The report, Housing: Taming the Elephant in the Economy, highlights the opinions of 87 Australian economists and other housing market experts on the impacts of house prices on the economy.
It reveals 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.
That exposes a “ticking economic time bomb” if interest rates go up, the study’s authors warn.
In addition, house prices, which have also risen by 10 per cent in the year to April, are forecast to rise up to 14 per cent in the coming year, placing home ownership further out of reach for many.
Report lead author Professor Duncan Maclennan, said the current housing system is dysfunctional at all levels and an inherent risk to the Australian economy.
The report also affirmed that Australia’s housing system is failing young people, who are being locked out of the market in growing numbers.
Professor Maclennan said an immediate overhaul is needed.
“Australia’s approach to housing policy has fuelled income and wealth inequality and created significant economic instability,” he said.
“This is becoming a huge drag on productivity, and warping Australia’s capital investment patterns.”
Professor Maclennan said the scale and complexity of the problem demanded that a royal commission be established to investigate how to defuse the “time bomb” and create a more equitable market for all Australians.
Everybody’s Home national spokeswoman Kate Colvin said while surging prices have left some wealthier and older Australians better off, younger and poorer Australians are much worse off.
“It’s time to shine a light on the fundamental flaws in our nation’s housing policies and create a concrete plan of solutions that work to address growing housing inequity, like building more social and affordable housing,” she said.
The report recommends a new national housing strategy at the Commonwealth level and a permanent housing committee as part of the national cabinet to fix the housing system.
It also recommends switching housing stimulus efforts to support the social rental sector.
The study authors also called for the Reserve Bank of Australia’s formal accountabilities to include housing market stability to help maintain a more rational market.
“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,” Professor Maclennan added.
“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.”