An affordability time bomb?

The 'sustainable' Population Minister Tony Burke recently released a population plan which said nothing about future population and entrepreneur Dick Smith continues to wage his campaign for low or no growth in Australia. With politicians running for cover and Dick pushing himself in front of news cameras, it was left to Bernard Salt to point out that, if we now choose to slow our population growth by reducing immigration, we reduce our productive taxpayer base and effectively kneecap our economy. Look what falling population growth (now at a twenty year low) is doing to a wide range of economic sectors in Queensland – from airports to construction to property – for an insight into what a low growth or no growth future might be like. Bernard's articleshere and here on population growth are worth reading if you haven't done so yet.

The bottom line is a rapid slimming of the population bulge of young working age Australians will mean fewer taxes for the non-working Australians in the future. And in the future, if fewer of those Australians enter retirement without the title to their own home, or do so still holding a large mortgage because the upfront costs and mortgage size were excessive and their entry into the market deferred, there'll be less capacity to self-fund retirement. Super nest eggs of $100,000 won't go far – figures of five or six times that are what's needed.

Ka-boom?

The shame of it all is how unnecessary the current policy settings are. Despite the clear damage being done to the current generation of new entrants and young families by deliberately increasing the cost of new entry level housing, and the increasing reports of mortgage stress and defaults in the face of mortgage overburden and cost of living increases (and yes, imagine the collateral damage we'll see with a carbon tax), policy makers blindy carry on citing untested and unproven ideology.

If you ever wanted an example of the sort of deranged policy speak that passes for town planning in some circles today, have a read of this tirade by a Queensland academic, suggesting that the ULDA's involvement in low price housing at Flagstone is somehow a reckless return to '1960s style sprawl.' Typical of many similar ideologues, the author makes no mention of the affordability issue and is totally removed from market needs of young families.

Left unchecked, today's policy settings will continue to exert unnecessary cost pressures on new housing. It will deter many from the market because they simply cannot afford it. Or they will defer their entry into the market, still with low deposits, and find themselves retiring still with a mortgage and a miserable super fund balance, and a relatively smaller society of working taxpayers who will resent any further burdens on their wallets to pay for someone else's aged pension.

This is something that the highly paid academics may not get. They may be planning their second investment home, and a generation of highly paid bureaucrats may face retirement with lovely super fund balances and a tidy property portfolio. In the process, we may have created two classes of Australians – those with property (and probably quite a bit of it), and those without.

Personally, I don't think that's a pretty picture. And how ironic that this is potentially the future we now face? It was almost 70 years ago that Robert Menzies gave his 'forgotten people' speech. A lot may have changed in that time, but much of what he had to say then rings loud and true today:

I do not believe that the real life of this nation is to be found either in great luxury hotels and the petty gossip of so-called fashionable suburbs, or in the officialdom of the organised masses. It is to be found in the homes of people who are nameless and unadvertised, and who, whatever their individual religious conviction or dogma, see in their children their greatest contribution to the immortality of their race. The home is the foundation of sanity and sobriety; it is the indispensable condition of continuity; its health determines the health of society as a whole...

The material home represents the concrete expression of the habits of frugality and saving "for a home of our own." Your advanced socialist may rave against private property even while he acquires it; but one of the best instincts in us is that which induces us to have one little piece of earth with a house and a garden which is ours; to which we can withdraw, in which we can be among our friends, into which no stranger may come against our will. If you consider it, you will see that if, as in the old saying, "the Englishman's home is his castle", it is this very fact that leads on to the conclusion that he who seeks to violate that law by violating the soil of England must be repelled and defeated.

England may have lost its chance with widely available home ownership, but is it too late for Australia?