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Why Australia's housing prognosis is grim

By Glen Anderson - posted Wednesday, 21 February 2018

Australia is fast becoming a two-tiered society, divided between those who own real property, and those who do not.

The former class of Australian tends to be older, and has experienced steady wages growth and living standard increases over successive decades. They are likely to have cash savings, super, and in some instances, one or more investment properties.

Those Australians who do not own real property, however, have been left behind. The profile of this Australian tends to be young. They have only seen minimal wages growth during their working life, and have tended to be shut out of natural employment progression due to older workers opting to remain within the workforce post-GFC.


Compounding these issues, between 2009-2017 house prices have skyrocketed – in Sydney and Melbourne by more than 100 percent. In a recent survey by Demographia, it was revealed that Sydney's "median multiple" (median house price divided by median household income) was the second highest in the world at 12.9 (the highest ever outside of Hong Kong). Melbourne came in at sixth at 9.9 – just behind San Jose (Silicon Valley).

The culmination of these circumstances is that innumerable young Australians have been locked out of the metropolitan and outer metropolitan housing market. Instead of owning their own home, they are trapped in the rent cycle, paying down their investor-landlords' inflated mortgages.

The age of egalitarianism and a fair go – at least when it comes to young Australians desirous of home ownership – is virtually over.

It might be expected that the Coalition would have devoted some of its time to addressing these problems. Not so it would seem. Aside from tokenistic changes to superannuation, nothing has been done. The principal policy solution – exemplified by Coalition MP Michael Sukkar (Assistant Minister to the Treasurer) – has been imploring young Australians to get a "highly paid job" as the "first step" to owning their own home. In the alternative, the Prime Minister, Malcolm Turnbull, has suggested that wealthy parents should act as benefactors and "shell out" for their children.

Meanwhile, the property bubble has run its own course, sustained by a period of record low interest rates and irresponsible lending practices.

Some sample calculations shed light on the extent of the problem. Presently, with an above average annual wage of $100,000, a thirty-year loan period, and a 5.5 percent interest rate, it is possible to obtain a mortgage of $697,000. If the interest rate is increased to 7.5 percent – just two percentage points higher – then the same borrower is only able to obtain $579,000 ($118,000 less). If the interest rate is increased further still, to 8.5 percent, the same borrower can only obtain $532,000 ($165,000 less when compared to 5.5 percent).


These figures indicate that if interest rates were to increase only marginally in the coming years, substantial numbers of borrowers would be in over their financial heads.

A similar conclusion emerges when examining some sample repayment figures for a $500,000 mortgage. In the case of a thirty-year loan period and an interest rate of 5.5 percent, the monthly repayments are $2838. When the interest rate is increased to 7.5 percent, the monthly repayments rise to $3496 (an additional $658 per month). When the interest rate is boosted by a further percentage point, to 8.5 percent, the monthly repayments reach $3844 (an additional $1006 per month when compared to 5.5 percent).

And the forgoing says nothing of the unprecedented numbers of interest-only mortgages which are reaching maturation in the coming years.

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About the Author

Glen Anderson is a lecturer in law at the University of Newcastle. Dr Anderson researches and teaches in the areas of international law, equity, company and property law. He has formerly taught Australian and international politics.

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