Australians have become housing hostages. Will the budget set them free?

The construction and real estate sectors account for more than 10 per cent of Australian economic output. (ABC News) Link copiedShareShare articleAustralians have been held hostage to the housing market for the better part of this century. The cost of buying a typical home has jumped from about four times the typical annual income across most capital cities in the year 2000 to more than eight now. Things are even worse in the most expensive city, Sydney, which was even less affordable to start with and where a median home will now set you back at least 10 times the typical annual income. No wonder then that home ownership rates for under-35s have dropped by 7 percentage points since 2001. Already, it takes prospective buyers in most capitals more than a decade to save for a 20 per cent deposit if they're on a fairly average income. The federal government's recently expanded 5 per cent deposit scheme has lowered this hurdle for some, but many can't afford the repayments on a 95 per cent loan anyway. So family help is essential for a large and growing cohort of first home buyers, meaning if you don't have parental wealth you're effectively locked out. Even for those who can break in, a 30-year mortgage is now the norm and, if you're not buying until your late 30s or 40s, then that means you're in debt until retirement and potentially beyond. It's not just individuals who've become trapped. Australia's big banks have around two-thirds of their assets tied up in residential property. On some estimates the construction and real estate sectors account for more than 10 per cent of Australian economic output and around 1.5 million jobs. That's why we titled the series I did with News Daily last year Housing Hostages, because the whole nation has become prisoner to the property market. Like most hostage situations, breaking free will not be painless and without risk, as the Albanese government is quickly learning. While the government has framed its tax changes as modest tweaks to help even the playing field between owner-occupiers and investors, make no mistake that these are significant changes. If they weren't the property sector would not be screaming blue murder. After many years of lamenting worsening affordability there is something approaching panic that national home prices flatlined in May. No matter that they were still up 8.8 per cent over the past 12 months. AMP chief economist Shane Oliver has one of the higher predictions for home price falls, and even he believes that will be about 5 per cent in total, spread over this year and next. But it's this comment from him, and similar views from other leading analysts, that has the property sector spooked: "The 30-year super cycle upswing in prices may be close to over." A lot of people and companies have made a lot of money from that "super cycle". Property investment is ingrained in the Australian psyche, but is it too easy to cast landlords as the villain in our housing crisis? Macquarie economists Ric Deverell, Anita Chao and Dan Fabbro are tipping an extended period where home prices grow no faster than general inflation. "If implemented, the recently proposed tax changes would add to our conviction that there will be little to no real price growth over the coming decade (or two), with the risk now that we are on the cusp of another significant fall," they said. Unlike many economists, they are far more comfortable fingering the introduction of the 50 per cent capital gains tax discount by then-treasurer Peter Costello under the Howard government as one of the key factors that ignited the multi-decade boom. "While there are always multiple factors influencing the housing market, the large jump in real house prices between 2000 and 2003 suggests that introduction of the capital gains tax discount was a significant factor pushing prices higher," they argued. "We therefore expect its reversal (along with the abolition of negative gearing) to add to the downward pressure already in play." The last quote is significant because it would be demonstrably wrong to say Treasurer Jim Chalmers's proposed tax changes have precipitated the current property downturn. As Cotality's research director Tim Lawless noted when releasing his firm's latest price data, the housing market had started declining under the weight of previous price increases even before the Reserve Bank shifted direction, and well before the speculation about tax changes ramped up. "This loss of momentum had been building for some time, well before interest rates started to rise, conflict escalated in Iran and taxation changes were announced in the Federal Budget," he wrote. The cost of buying a typical home in most capital cities is now about eight times annual income. (ABC News: John Gunn) "Most cities recorded a peak in value growth through spring last year as affordability and serviceability constraints increasingly weighed on housing demand." In simple terms, th

Australians have become housing hostages. Will the budget set them free?

Key takeaways

More in international