What happened to the Aussie dream?

4 June, 2024

Over the past year or so, I've been following Matt Barrie, an award-winning Australian technology entrepreneur who has his finger well and truly on Australia's housing pulse—a pulse that is weak, sluggish and in desperate need of immediate resuscitation. As Matt said recently:

The root of all evil in this country is the astronomical price of housing. Once you understand all the ramifications of that—it really is the problem that is the root of all problems.

I couldn't agree more, Matt. Matt also delivered a sobering message. He said:

… it is now mathematically impossible for a household on the median income to pay off a mortgage in Australia …

What happened to the lucky country? What happened to the clever country? Since when did the offer of a car park to sleep in for homeless women and children become a solution? The current situation is that, despite the Reserve Bank increasing interest rates to get a hold of inflation, property prices in capital cities in Australia continued to surge another 20 per cent last year. Matt Barrie said a home is considered astronomically unaffordable by economists if it costs more than five times the average salary. In Australia, the average capital city home is nine times the average salary of Australians and, in Sydney, it's an eye-watering 13 times. So who's to blame? This has been an issue on the horizon for decades now, so the blame has apportioned to all sides of politics, but Labor's immigration policy—bringing in 518,000 people in 2022-23—has served only to inflame this already hot issue to the point where now homeownership is unaffordable for the vast majority of the Australian population.

What is the solution? Economist Yanis Varoufakis has told the Equity Mates Investing podcast that another one million homes were needed in Australia within the next three years. He said that any measures to increase the affordability of housing, such as lowering interest rates or government grants, would only increase prices. Australia is in the middle of a dire housing crisis, and the impact on families with young children is particularly distressing. Not only is housing ridiculously expensive both to rent and to buy but the homes are simply not there. In response to this, the government claim they can build over a million houses in just five years. As it said in the great story, 'They're dreaming.'

Australians need these homes desperately, but there are significant limitations that will prevent this ambitious target from being met. Firstly, new housing starts came in at the lowest level in more than a decade last year: 90,000 below an annual target of 240,000 homes. Secondly, Australian builders and construction firms are collapsing at an unprecedented rate. According to ASIC, between July 2022 and April 2023, 1,709 building and construction companies across Australia went into administration. These aren't just small companies. These are big names like Porter Davis, ProBuild, Pivotal Homes and many others who have been operating for decades. Thirdly, across New South Wales, migrant families are apparently taking up more than 35,000 social housing tenancies—over 22 per cent of all tenancies in the state. And, on top of this, there's a dire shortage of skilled building workers. Between collapsing construction companies, the scarcity of skilled workers and booming population, how on earth can we build enough houses for Australians and for the hundreds of thousands of migrants hoping Australia will give them a better life?

The government of the day can make all the promises they like, and they can throw billions of taxpayers' funds to the states but, at the end of the day, the homes are simply not being built. We need to rebuild our collapsing construction industry, and we need to do that quickly before the housing crisis becomes a humanitarian crisis. The facts show there is stark inequality in my generation's ability to own a home compared to that of much younger generations. Wages are not going up at the rate that the cost of housing is going up. In fact, at the moment, wages have the greatest ever decline in terms of purchasing power. For 20- to 24-year-olds, the real purchasing power of wages went back to 2008 levels in the last year.

We all know that governments love to talk about how they're going to solve our problems, but actually doing it a different story. The truth is that, contrary to what we are told, Australia's housing crisis isn't a very complicated problem to fix. In fact, the solution is rather simple. Australia's priority should be to create an environment where the RBA is encouraged to reduce interest rates, which the recent federal budget certainly hasn't allowed. With lower interest rates, levels of investment in housing can return to what they used to be. Naturally this will encourage more houses to be built, thus increasing the supply of houses to build and to rent. There is also another underlying problem for our young people which no doubt also has its role to play in the housing crisis at hand. Young people—even those with high-level qualifications—are struggling to get into the jobs that they want. This may be due to things like the receding economy or the increased presence of international students, but the point is this: the barrier to home ownership and job choice, which are significant parts of growing up, is too high and is and is affecting our kids' attitude to life.

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Russell Broadbent MP
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