The Great Australian Dream Has Been Demolished

The Great Australian Dream, the aspiration to own a house on a modest block of land has been idealised as both the ultimate marker of success and a gateway to a better life. Since after the Second World War, waves of migrants have arrived on Australia’s shores in search of this promise. And many found it. The so-called “Ten Pound Poms”, British citizens who migrated to Australia and New Zealand in the 1940s and 50s who were charged a processing fee of £10 – around $900 in today’s money – as part of the Government’s “Populate or Perish” policy, they were promised employment prospects, affordable housing, and a generally more optimistic lifestyle.

But for current generations, the dreams offered to their parents and grandparents are out of reach. Even renting a house has become a nightmare. The media is awash with stories of massive rent increases and images of desperate people queuing to inspect properties, properties often riddled with defects and mould. And you can’t complain, because the owners know that you’re desperate. If you move out, they can easily find some other poor sap to take your place.

Dr Michael Fotheringham, Managing Director at the Australian Housing and Urban Research Institute, has said, “Almost everything that could go wrong with housing in Australia has gone wrong. The only thing that could make it worse is if banks started collapsing. It’s Grapes of Wrath stuff,” referring to the Great Depression-era novel.

The crisis is tipping people into homelessness or overcrowded living conditions. Demand for housing support is so high that some charities say that people in need have been asking for tents and sleeping bags over food and toys.

Every metric tells the same story. Although initially steady, the total value of housing stock in Australia is well above $10 trillion now. Here’s the number written out in full. It’s a number so astronomically huge, it just doesn’t mean anything anymore.

Over the last few decades, the ratio of house prices as compared to household disposable income has more than doubled, along with it household debt.

But it hasn’t always been this way. Up until the new millennium, house prices pretty much tracked wages. As house prices went up, your wages went up, and vice-versa. But after 2000, what do you think happened? Well, we all know the story. Dwelling prices skyrocketed much faster than wages. People aren’t lazier. People aren’t working less. It’s just that the average salary just isn’t buying as much real estate as it used to. 6% compound annual growth in the value of houses over the past 23 years versus 3% annual growth in average incomes has meant that household debt has had to increase from half average disposable income to almost double. The large amount of housing debt Australians carry means that interest rates have a much greater impact on their lives, and this in turn affects inflation, wages, employment and economic growth.

But why? What happened around the year 2000 that made things go so awry? There are basically three reasons. 1. A sharp lift in immigration. Obviously, the more people there are in the country, the more demand for housing. 2. Capital gains tax breaks and negative gearing, which represent a $96 billion per year subsidy for buying houses. And 3. First Home Owner Grants, which essentially inject $1.5 billion into house prices each year. These grants are supposed to help us, but as with many things the Government do, they end up hurting us. And each of these are a direct result of the Government. Either the unintended consequences of misguided ideas, or deliberate policies designed to preserve the wealth of homeowners. Obviously, we can’t just blame one political party. Successive governments have continually fuelled this crisis. It’s just easier to blame the current leader, but it’s certainly not entirely his fault.

As a bit of an aside, former Labor Prime Minister Julia Gillard, and former Liberal Prime Minister, Tony Abbott, both benefited from the Ten Pound Poms scheme mentioned earlier having migrated with their families at a young age.

After decades of government policies that treat housing as an investment not a right, it has become politically easier to make an asset worth more than to make it worth less. If governments caused this crisis, then surely the Government can fix it, but it would require some real political courage to make housing more affordable in Australia.

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Allégro by Emmit Fenn