Housing has reached unprecedented levels of unaffordability

Affordable housing is crucial. Without it, people are impoverished, families and communities eroded, jobs lost and the economy weakened. Affordability is now at its worst-ever level. Prices almost doubled during the past decade, even allowing for increases in household income.

The number of first-home buyers dropped by one third, accelerating a longer-term decline in home-ownership rates. Average repayments on new mortgages rose about 50 per cent ($500 a month). Housing debt soared beyond the levels of almost every developed country.

Some people claim these increases are just part of the normal ups and downs of housing markets. Everything will correct itself, they say, as the market cools.

But the increases have been much greater, more widespread and prolonged than the 1980s "boom" which held the previous record. House prices, for example, have risen at least three times as much.

For at least the past 50 years house prices have trended inexorably upwards, punctuated only by relatively brief and modest falls. After the 1980s boom, for example, they fell by only a few per cent.

The unprecedented current upsurge may be followed by an unprecedented collapse. But even a huge fall would leave new homebuyers facing much higher prices than a few years ago. And it would severely harm recent homebuyers and the economy.

The affordability problem is by no means confined to homebuyers. Indeed, some of its deepest impacts are on low-income renters in private or public housing.

Rent levels have risen relative to income for many lower-income households. Government rent assistance has not protected at least 300,000 recipients from unaffordable housing costs. 

The supply of low-rent accommodation has fallen by at least 15 per cent and opportunities to obtain public housing have been cut even more. Each night, more than 100 families with children are turned away from emergency housing for lack of room. For many lower-income Australians, then, the so-called housing "boom" has already been a "bust". But they are also at special risk from future falls in house prices or economic growth.

Those who have taken on unaffordable mortgages for fear of "missing out" will suffer more when interest rates inevitably rise. They may incur substantial losses from forced sales.

Many low-income renters will suffer as landlords raise rents to compensate for declining capital gains and higher interest rates. More lower-income people will have to move even further away from job opportunities or family networks.

The creeping crisis in affordability has been developing for many years. There is considerable agreement about the key causes, although opinions differ about their relative impacts. The great increase in paid work by women over recent decades has enabled many households to bid more for homes, especially to be close to their work. More recently, general economic growth has boosted many incomes and competitive escalation of prices.