Why the big parties' professed housing fixes won't work

I’m sorry to tell you, but it’s becoming increasingly likely that next year’s federal election campaign will feature a fight over which side has the better policies to end the housing crisis. Why is that bad news? Because neither of the major parties’ proffered solutions would do much good.

The Albanese government wants to introduce two schemes – Help to Buy and Build to Rent – but these are being blocked in the Senate by the opposition and the Greens. If they’re not passed, Labor will go to the election claiming it has the policies that could fix the high cost of housing, but is being stopped by its evil, anti-housing opponents.

The Liberals claim Labor’s schemes are no good, but that their own proposal, Super for Housing, would do the trick. As for the Greens, they’re blocking Labor’s schemes because, they say, they’re too small to make any difference, and Labor needs to agree to their proposals to make that difference. What proposals? To end negative gearing, spend a lot more on building social housing, and limit how much rents can be increased in any year.

The Greens are selling themselves as the party for renters. This is no bad thing. The two big parties have never worried much about renters, even though they make up about a third of households.

The real problem is that the big parties’ schemes don’t stand up to close examination. They’re designed to look bigger and more helpful than they really are.

The term housing “crisis” is misleading. Both sides of politics have sat back for decades, happily watching house prices rise faster than household incomes.

When you go back to basics, the cause of rising house prices is that the demand for properties is growing faster than the supply of them. The only policies that slow the rise in prices are those that either add to the supply of homes or reduce the demand for them.

So when governments pretend to help first-home buyers with grants or reduced stamp duty, they’re neither adding to supply nor reducing demand. They’re just making it easier for some people to pay the high price. Get it? They’re actually helping keep the price high. And if they help enough buyers, they’re probably pushing prices a bit higher.

This is what’s wrong with both Labor’s Help to Buy scheme and the Libs’ Super for Housing scheme. Labor’s scheme would involve the government giving eligible homebuyers up to 40 per cent of the home’s purchase price, but retaining ownership of the same proportion of the home’s value.

Whenever you sold the house, you’d have to buy out the government’s share, which by then would be a much higher amount than you were originally given. This is a condition that hasn’t appealed to many people when some of the states have offered similar schemes. There haven’t been many takers.

Labor’s scheme would be offered to a maximum of 10,000 buyers a year. This may sound a lot, but in an economy of 27 million people, it ain’t.

The deeper problem, however, is that, as with previous straight-out grants to first-home buyers, it doesn’t reduce the price of homes but, rather, makes them a bit easier for a few lucky people to afford. By doing so, it actually adds to the demand for homes, so putting upward pressure on prices.

The Libs’ objection, however, is that Labor’s scheme smacks of socialism. Their rival plan, Super for Homes, would allow eligible buyers to add to their home deposit (and thus to the amount they could borrow), by withdrawing up to $50,000 from their superannuation savings, provided it was no more than 40 per cent of their super balance.

One objection to this is that it wouldn’t do much to help younger homebuyers, since they wouldn’t have accrued much super. But, again, the more serious criticism is that the scheme would actually add to the demand for homes and so help push prices higher.

By contrast, Labor’s other scheme, Build to Rent, would offer special tax concessions to those big concerns that built new blocks of apartments and rented them out. So it would – in principle, at least – help by adding a bit to the supply of homes.

And, to be fair to the government, its already-implemented deal with the state governments, where it’s giving them big bucks to facilitate the building of 1.2 million new homes over five years, would – in principle – add to the supply of homes, particularly higher-density housing in the parts of capital cities where people most want to live.

Why will we be increasing the supply of homes only “in principle”? Because, right now, the nation’s home building industry can’t expand without more tradespeople. It’s short of workers because a lot of them have gone off to work on the states’ big infrastructure projects, but also because for years the industry has been saving money by not training enough apprentices.

When you’ve allowed homes to become ever-harder to afford over many decades, a few showy schemes won’t suddenly fix the problem.

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Why Albanese's housing solution will help, but only a bit

If you rank our many economic problems in order of importance, the affordability of housing comes second – admittedly, a distant second – only to the need to limit climate change. And the good news is that Anthony Albanese’s latest deal with the premiers represents progress. The feds have made a start by offering the premiers a bag of money if they do the right thing.

What climate change and housing have in common is their great effect on the future wellbeing of our children. With housing, the fundamental problem is that our present arrangements favour those who already own a home (or two) at the expense of those who’d like to own one.

Those who are well set up in the property department love seeing the inexorable rise in their wealth. The more unaffordable their home becomes, the happier they are. Because there are double the number of home owners to would-be home owners and other renters, politicians on both sides have gone for decades professing great concern about the plight of would-be first home buyers while doing little or nothing to help them.

This means housing is becoming hereditary. Young people can afford to buy a home only with help from their parents, but parents can help only if they’re well-established home owners. Without so much help from parents, home prices would have to fall to make homes affordable.

So, the Bank of Mum and Dad has become an essential part of the system, but it works to keep home prices unaffordable to those without access to that bank.

Renting used to be seen as a temporary, transitory state. This is why state governments have never worried much about the treatment of tenants and have easily yielded to pressure from landlords to give them the upper hand.

It’s always been the case that poor people rented all their lives, but now the poor and the students are being joined by middle-class couples who’ve got on with having kids rather than waiting until they can afford a place. We’re acquiring a large underclass of people who’ll never manage to afford a ticket in the home owners’ club.

Until now, the problem of “housing affordability” has been seen as a problem for would-be home owners. Last week, the focus shifted to rent affordability and the poor treatment often dished out to renters.

Economically, this has happened because, at a time when the price of everything we buy is rising faster than our wages, rents have been positively shooting up. Why? Because, suddenly, there are so few vacancies; because the number of people needing to rent almost exceeds the number of properties for rent.

Politically, the spotlight has turned on renters because the Greens have been taking votes from the two majors by billing themselves as the party for renters.

Meanwhile, the nation’s economists, whose usual focus has been on the way tax and pension rules have pushed up home prices by adding unduly to the demand for homes, have reached a new consensus that it’s really the inadequate supply of homes that’s the problem.

Right now, that’s obviously true – especially in the supply of rental accommodation. But if you look at our record over recent decades, supply hasn’t had much trouble keeping up with demand, so it’s not the main thing that’s pushed prices so high.

So, on the face of it, Albanese’s new agreement with the premiers to facilitate the building of 200,000 more homes than the previous target of 1 million extra homes, over the five years from next July, doesn’t seem such a big deal. Most of those probably would have been built anyway.

What’s different is that they have to be new “well-located” homes. Well-located means “close to existing public transport connections, amenities and employment”.

Get it? “Well-located” is code for medium- and high-density housing. Most people want to live close to the centre of capital cities – or at least close to good public transport to the city – and economists now believe it’s council zoning restrictions on high-rise that’s done most to drive up home prices “where people want to live”.

So, premiers Daniel Andrews and Chris Minns have signed up to more high-rise. But agreeing to targets is one thing; delivering them is quite another. The premiers will meet plenty of objections, obstructions and foot-dragging.

That’s the other thing that’s different about Albanese’s new deal. He’s offering $3.5 billion in “performance-based funding” to those states that achieve more than their share of the original 1 million target. Each of the further well-located 200,000 homes their state’s builders produce will bring the premier a $15,000 bonus.

You’ve heard what they say about getting between a premier and a bag of money, so let’s hope it works. Ditto the premiers’ promises to reach a national agreement requiring landlords to have reasonable grounds for eviction, limiting rent increases to once a year, and phasing in minimum quality standards for rental properties.

When it comes to getting premiers to agree on harmonising regulations, I wouldn’t hold my breath – unless there’s more money on the table, of course.

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A home of one's own: So good only the rich need apply

Slowly – but sooner than you may think – this country, so proud to be a nation of home owners, is turning into a nation of renters.

Perversely, it’s happening because we value home ownership so highly. And we’ve never much worried about what happens to those who don’t make it onto the home owners’ merry-go-round.

Historically, the reason we want so much to own the home we live in is security of tenure. We don’t want to be beholden to a landlord deciding whether we stay or must go.

We don’t want to live in a place where someone else decides if we can have a pet, whether we can knock a nail into a wall, whether the place needs a coat of paint, or when they’ll get around to fixing the leaky toilet.

That’s always been the chief reason for wanting to own the place you live in. What’s changed is that a second motivation has become more prominent in our minds: homes turn out to be a good investment, a good place to put your savings and watch them grow.

Whereas the value of shares goes up and down with the vagaries of the sharemarket, the price of homes just keeps going up and up. (As we’re seeing now, that’s not quite true, but we still believe it.)

And because home ownership is such a national priority, it comes with many exemptions. When we decided to start taxing capital gains in the mid-1980s, we exempted the family home. And, unlike other assets, the home you own is largely ignored when assessing your eligibility for the age pension.

Any savings I invest in making my principal residence bigger and better won’t be subject to gains tax, as most other investments would.

Actually, homes are such a good investment, why don’t I invest in more than one? I’ll have to pay gains tax when I sell, but this time I’ll get a tax deduction on the mortgage interest I pay.

And naturally, being a home owner with a big investment, I’ll make sure the local council knows how opposed I am to people building those terrible high-rises anywhere near my place.

See what happens? The more benefits we attach to home ownership and the more people want to own a house or three, the more they bid up the price of houses. That makes being on the home owners’ merry-go-round an ever-better investment, but that much harder for others to climb aboard.

The more we favour home owners, the more we disadvantage renters. The more we encourage multiple home owning by those who can afford it – which most rich countries stopped doing long ago – the more unaffordable buying your first home becomes.

But not to worry. I’ll just give my kids a leg up in putting a deposit together. Of course, this just keeps home prices high and makes those kids without well-off parents worse off. Tough.

The other thing it does is more sharply divide Australia by making home ownership something only the well-off can afford.

Why don’t the politicians do something about it? Because that would involve reducing the privileges of existing home owners, who’d fight it all the way, led by real estate agents and developers.

There’s always been a minority of life-long renters but, home ownership being the national obsession it is, we’ve never worried about them. Renters have much greater legal rights in other rich countries than they do here, but that’s never bothered us. Renters, we happily assume, are just youngsters on their way to their first home.

This was never true, but it becomes more untrue as each census passes. In a major speech last week, the Grattan Institute’s Brendan Coates said “home ownership rates are falling fast, especially among the young and poor”.

Over the 40 years to 2021, home ownership rates among 25- to 34-year-olds fell from more than 60 per cent to 40 per cent. Among the lowest-paid 40 per cent of that age group, it has more than halved, from 67 per cent to 28 per cent, Coates said.

Last year’s census shows we’ve started seeing accelerating declines among middle-income households too, with noticeable falls in home ownership at all age levels, including older middle-income households.

The proportion of people who reach retirement never having been able to afford a home is increasing, as is the proportion of home owners retiring with unpaid home loans.

I wouldn’t like to be in the shoes of the 70-year-old pensioner living in a small town, who told Tenants Victoria she had to work two days a week to afford the ever-increasing rent on a granny flat in an old house.

We can keep ignoring the poor treatment of renters because they’ll soon get a place of their own, or we can take the controversial measures needed to stop housing from becoming ever-more unaffordable.

But even if we put through all the necessary changes tomorrow, we’d still end up with many more people spending most of their life as a tenant. Time we cared about renters.

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If you care about our future, care about declining home ownership

The most thought-provoking contribution I’ve heard so far in this utterly dumbed-down election campaign is from barrister Gray Connolly, saying the big issue we should be debating is housing and intergenerational wealth.

Connolly was speaking as a self-proclaimed Red Tory, on ABC Radio National’s Religion and Ethics Report. Red Tories, he says, are people on the political Right who have a more traditional view of what we’re trying to achieve. They are true conservatives, trying to conserve the institutions and practices that have given us the way of life we value.

Red Tories believe in communitarianism – much more about “we” than “me”. They highlight the virtues of home and family. They emphasise the boring virtues, like duty, perseverance and loyalty, not just people’s rights.

That so few Australians under 40 have any form of home ownership or wealth of any kind is a ticking timebomb socially, Connolly says. It’s this that could split the country demographically.

“I cannot believe how little work either side of politics has done on the housing issue. It’s an absolute disgrace that the Coalition, on the Right of politics, for whom home ownership is usually something very important, has done so little to promote home ownership among young people.

“You cannot have a stable country where so many people do not have security in their homes, do not have security in their work, don’t feel they’re getting ahead, and do not feel they have a stake in society that causes them to want to preserve it.

“I cannot believe that so many people on the Right of politics do not get this,” he says.

How do the economic policies of recent decades adversely affect traditional conservative values?

“For the better part of 20 years, nothing has been done other than pour fuel on the housing-price fire,” he says. This has continued even to the point of not looking after renters, not looking after people with insecure work.

It has delayed coupling and family formation for most people. “If you don’t have secure work, chances are you’re not going to form a family because chances are you cannot afford a home.”

If you have housing that is so expensive, then you have young people moving away from where their parents are. You have the family bond dissolve, he says.

“If you are a conservative, you want to conserve [that bond].” You want adult children to be able to look after their ageing parents. You want grown-up children to be able to turn to their parents for childcare. This, he says, is the natural order of society.

But because “the market” and government policy mean we don’t “prioritise residential housing for actual residence, but for investment, you have the absolute social disaster where these bonds are being split apart.”

Does it surprise you to hear anyone on the Right accepting that insecure work is a major social problem? Though the Red Tory label is a recent British invention, Connolly traces its origins back to the mid-19th century and Benjamin Disraeli.

Then, then the Conservatives saw the trade union movement as a necessary counterbalance to the “viciousness and brutality of Manchester liberalism,” Connolly says. (Manchester would have been seen as centre of the dark satanic mills.)

Connolly says Red Tories accept the role of the state as protector of the nation, but also of the family and the family structure. They see the state as being useful for achieving bigger projects for the national good.

Phillip Bond, instigator of Britain’s Red Tory revival, says the market has a tendency to devour its host society. Connolly says this is a very dangerous tendency and that’s where the state comes in.

Corporations are creatures of statute, and what statutes make they can unmake and can regulate, he says. So rather than fearing the state is too powerful, “I am much more scared of the state that’s too reluctant to bring corporations to heel”.

A corporation has no special rights in society any more than any other group does. The state is meant to protect the rights that people need to be protected. We should be conserving society and the community and serving the weakest and the hurt, he concludes.

I think there’s much sense in what Connolly says, and not just about the high social price we’ll pay for making too many jobs insecure and homes too hard for too many young people to afford. We’ll damage the Australian way of life.

The economy is all of us. It belongs to all of us, not just a few big corporations. It must be the servant of our society. Governments’ job is to ensure the economy improves our way of life and doesn’t diminish it.

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Beware of pedlars of supply-side solutions to home affordability

One thing you can be sure of is that if house prices are soaring, governments will be holding inquiries into it. Unfortunately, the other thing you can be sure of is that nothing will come of those inquiries.

Why? Because their purpose is to express the government’s deep concern about the worsening affordability of homeownership – its heart-felt sympathy for young people struggling to buy their first home – not to tackle the problem.

Why? Because policy decisions made by governments – federal and state – over many years have rigged the housing market in favour of people who already own their homes and against those who’d like to own.

Why? Because the number of voting homeowners far exceeds the number of voting would-be homeowners. The established homeowners – and the industries that benefit from the rigged market, such as property developers and real estate agents – get shirty if they think their privileges are threatened.

Labor summoned its courage and promised to act against negative gearing and the deep discount of capital gains tax in the 2016 and 2019 federal elections but, since its shock defeat in 2019, its courage has deserted it.

Speaking of housing inquiries, as we speak Treasurer Josh Frydenberg has a parliamentary committee inquiring into “housing affordability and supply”. As its terms of reference make clear, it’s not actually about housing affordability, but really about blaming rocketing house prices on inadequate supply rather than excessive demand.

Why? Because, with a federal election fast approaching, its real motivation is to shift the blame for increasingly unaffordable house prices away from the feds and on to the states. Whereas most of the policies promoting demand for homeownership are under the influence of the federal government, most of the policies affecting the adequacy of the supply of homes are influenced by the state governments and their creature, local government.

When I wrote about the causes of rocketing house prices last week, I knew I was leaving myself open to attack because I focused solely on factors adding to demand and didn’t get to supply factors before I ran out of space.

True, no analysis of change in any market price is adequate if it doesn’t examine both sides of the market. So let me make amends.

In simple economic theory, if the price of some item rises, the reason should be that demand has outstripped supply. Let supply catch up and the price should return to where it was. If the demand for homes rises by 100, build 100 more homes and the price should be unchanged.

But such thinking is grossly oversimplified – especially when applied to something as complex as the housing market. For a start, the simple model is designed to analyse markets for “commodities” – simple consumer goods or services you buy and soon eat or use up.

Homes, however, are assets that last for decades and have a resale value. Most of that value resides in the land on which the home is built, and the land goes on forever.

This means a home is both a consumption good – it provides its owner or tenant with somewhere to live – and an investment good, which should at least hold its value over time and probably increase in value.

As the Reserve Bank’s submission to the latest inquiry has pointed out, the growth in the number of homes has pretty much kept up with population growth in recent decades, meaning a shortage of places to live can’t explain rising house prices.

In any case, the price of buying a home is an unreliable guide to the price of finding somewhere to live since there are two reasons for buying a home: as a place to live and as an investment (a good place to park your wealth).

The better guide to the cost of finding somewhere to live comes not from the price of houses and units but from the price of renting. And the figures show that (with the possible exception of Sydney), the cost of renting in capital cities has risen only a little faster than other consumer prices.

This fits with our earlier finding that the number of homes has kept pace with population growth. And it leaves little support for the widely aired claims of people from conservative think tanks that house prices have risen because state and local government planning and zoning regulations are limiting the release of land for housing development or the growth of medium and high-density housing.

This argument has been debunked by Dr Cameron Murray of the University of Sydney. Being based on mere modelling, it fails to take account of the empirical fact that zoning regulations have been eased in recent years, specifically to ensure that home building keeps up with population growth.

This has happened over many people’s objections to the growth in high-density housing. But, unless we want our capital cities to keep sprawling outward forever, more high-rise housing is an inevitable consequence of business’s demand for – and almost every economist’s support for – rapid population growth.

All this suggests it’s the strong demand for home ownership, not any inadequacy in the supply of homes that’s driving prices up so rapidly. But what, and why? I think house prices are rising strongly because federal government decisions have made housing more attractive as an investment.

They’ve made home ownership more favourably taxed than other forms of investment, such as shares, art and antiques, or fixed-interest investments. This has always been true, but it’s become more so, first, with the Hawke government’s introduction of a capital gains tax in 1985, while exempting the family home.

But the biggest change came with the Howard government’s move in 1999 from taxing only real capital gains to taxing the full nominal gain but at only half your marginal tax rate. The popularity of negatively geared property investment took off from that time.

Ask yourself this: if the number of homes is pretty much keeping up with growth in the number of households, what happens when some homeowners decide they’d like to own more than one home, maybe many more? They use their superior borrowing-power to outbid the other home owners, existing and would-be.

The supply of land for housing is limited, but not fixed. That’s because cities can sprawl, or you can pack more households onto to the same bit of land by building up. But both solutions add to costs.

The simple demand-versus-supply model assumes the “commodity” in question is “homogeneous” – all the same. But with houses and units, it would be closer to the truth to say every home is different. Even two houses of the same design are different if they’re in different suburbs.

And some homes are in prime positions – on the harbour, near the beach, closer to town. The cheaper it becomes to borrow, the more people will bid prices higher to get the fabulous place they want.

The more governments use high immigration to increase the size of cities, the more competition there is to buy a detached house, and the more people will pay to get a place that’s close to the CBD.

Ever-rising house prices is a demand story more than a supply story.

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Dearer houses: another problem we’re ‘learning to live with’

The poor relation in all our worries – about the pandemic, the economy, climate change – has been housing affordability. While everything else in the economy has been weak, house prices have been rocketing.

I can tell you why they have, and I can say with confidence that house prices can’t keep rising at double-digit rates forever. But I can’t assure you we’ll ever get house prices to rise no faster than we find easy to afford, nor that we’ll ever manage to reverse the steady decline in the proportion of households owning their home.

When I started in this business in 1974, it was at a record 70 per cent. Today it’s down to 65.5 per cent – it’s lowest since 1954 – and almost certain to keep going lower without radical change.

It’s always possible that it’s all a great bubble that one day bursts, bringing house prices crashing down. That, amid all the pain and destruction – all the families being evicted from homes the mortgage payments on which they could no longer afford – the consolation for others would be much more affordable prices.

For the housing market to one day go from boom to bust is almost certain. It’s happened plenty of times before. It’s a myth that house prices always go up and never down.

But in my experience, they’ve never fallen far, nor for very long. They take a breather for a couple of years before resuming their upward march at a more sedate pace. Until the next boom.

Why am I so confident that, over any period longer than a decade, house prices will be higher? I could say it’s because Australians are obsessed by the desire to own their home, and then gradually turn it into their mansion. But Aussies aren’t different to people in other rich countries.

So I’ll just say housing – along with education, healthcare and other things – is a “superior good”. As our incomes rise over time, we spend an increasing proportion of them on our housing.

This is mainly why house prices keep rising. One consequence of the rise of the two-income family was that a higher proportion of their joint income went on housing. What we hope we’d achieve by this was a better house – bigger, better located or better appointed.

It’s true that newly built houses are bigger and better than they used to be, and established houses are always being remodelled and extended. But when lots of people are trying to get a better place at the same time, a lot of the extra borrowing and spending just bids up the price.

It’s much the same story with the fall in interest rates. From their peak of 17.5 per cent in 1989, mortgage rates are now down to about 3 per cent.

Why? Primarily because the inflation rate’s fallen from 9 per cent to less than 2 per cent, but also because the advanced countries have never got their economies working properly since the global financial crisis, and have been using ever-lower interest rates to get things moving.

(Note that, unlike normal people, economists use the word “inflation” to refer only to the prices of ordinary goods and services, never to the prices of assets such as houses.)

The point is, every time interest rates have fallen a bit over the past 30 years people have used the opportunity to borrow more in an effort to buy a first home or move to a better one. Again, when too many people do this at the same time, house prices are bid even higher.

The main reason house prices have soared during the pandemic is that the Reserve Bank has acted to protect the economy by cutting its official interest rate virtually to zero, and we’ve responded the way we always do to lower rates.

So, much of the seeming benefit of lower interest rates ends up as higher house prices – to the benefit of existing home owners and the expense of young aspiring first-home buyers.

The good news for first-home buyers is that, with rates having hit the bottom, this is the last time house prices will soar simply because rates have been cut. So double-digit rises in house prices can’t last.

The bad news for would-be and recent actual first-home buyers – which won’t come for a couple of years yet – is that the next move in rates can only be up.

The rules of the home-ownership game are rigged in favour of existing home owners. That’s because they far outnumber aspiring home owners. And they’re not willing to give up their tax and other privileges to help the younger generation.

Except, of course, their own kids. The Bank of Mum and Dad has played a big part in making seemingly unaffordable house prices able to be afforded – by some.

The ever-rising proportion of Australians who’ll never own their homes are mainly those who failed to pick the right parents. Want proof of the widening gap between the rich and the rest? Look no further than home ownership.

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Home ownership has become a devouring monster

Like all the advanced economies, ours has stopped working the way we’re used to. Our obsession with home ownership is a fair part of the problem.

Let’s be clear: I’m a believer in the Great Australian Dream of owning your own home.

But right now, it’s adding to the economic troubles of many countries. I doubt if the preference for home ownership is causing those countries bigger problems than it’s causing us. We have one of the highest rates of household debt to household disposable income (although ours is made to look worse than the others because of our unusual tax breaks for negatively geared property investments).

Like a lot of people who care about the state of the world we’re leaving to our children and grandchildren (my four-year-old grandson is “helping” me as I write this), I was pleased to see the period of spiralling house prices come to an end a few years back and prices start falling.

But, for Sydney and Melbourne, this sorely needed correction came to an end last year, after three interest-rate cuts and a change in prudential lending rules saw prices resumed their upward climb.

If we can’t cut interest rates a little without an upsurge in borrowing causing us to resume bidding up house prices, we’ve got a problem. Our household debt is at near-record levels, but let’s add to it.

Meanwhile, when you add falling house prices to the economy’s deeper problem of protracted weak wage growth, many home buyers worry and slash their consumer spending to try to reduce their debt.

That huge household debt will be a drag on our economy for years, keeping growth low. Another issue that isn’t helping is our “new normal” of exceptionally low price and wage inflation.

Until recent years, first-home buyers (or any other borrowers for owner-occupied housing) used to be able to load themselves up to the gunnels in debt and monthly payment obligation, secure in the knowledge that, after a few years of high growth in nominal wages, those repayments (little changed in nominal terms) would be reduced to a much more manageable share of their income.

When such “norms” get stuck in people’s heads, it can take years for people to realise they can no longer be relied on. And for those couples for whom the memo arrived too late, they’ll be struggling to keep up their huge mortgage payments for many more years than they bargained for.

So, on one hand we’ve got the economy being held back by households’ huge level of debt and mortgage payments while, on the other, home ownership is becoming unattainable for an increasing proportion of the population. Those who do eventually manage to attain it have to scrimp on other aspects of their living standards, and often get there so much later in their working lives that their ability to save for retirement is diminished.

The devouring monster we’ve allowed home ownership to become is now eroding what’s long been the fourth leg of retirement income policy. More people are retiring without owning a home, whereas the level of the age pension is kept low under the assumption that almost everyone owns their home outright.

Get it? We’re suffering the wider economic disadvantages of huge household debt without the commensurate advantage of a higher rate of home ownership. The rate of home ownership is actually falling slowly as the oldies with high rates of home ownership are dying and being replaced by newly formed, young households, very few of which can afford a mortgage.

But Reserve Bank governor Dr Philip Lowe has injected a note of hope. When measured against the ruler of household income, America’s house prices are much lower than ours. Why? Because of differing policies towards housing. The Yanks have kept land prices lower by allowing more suburban sprawl.

For our part, we’ve had various tax and pension policies seemingly intended to help would-be first-home buyers that, in reality, work to benefit existing home owners. We’ve made housing – whether owner-occupied or rental properties – a tax-preferred investment, not just a means to security of tenure. In the process, we’ve made it too hard for young first-home buyers to afford.

When parents respond to this by recycling to their offspring some of the capital gain they’ve enjoyed on their own property investment (as I have), they’re solving their own children’s affordability problem in a way that keeps house prices high, at the expense of those many young people whose parents aren’t able to help out.

No, if we want to make home ownership more affordable for more young people seeking security of tenure for their home, the answer is to make home ownership less attractive as a form of investment.

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The Great Australian Dream is keeping the economy weak

Do you worry about the enormous size of your mortgage? If you do, it seems you’re not the only one. And the way Reserve Bank governor Dr Philip Lowe sees it, people like you are the main reason consumer spending is so weak and the Reserve and the Morrison government are having so much trouble getting the economy moving.

Until the global financial crisis in 2008, we were used to an economy that, after allowing for inflation, grew by about 3 per cent a year. The latest figures show it growing by barely more than half that. (This, of course, is before we feel the temporary effects of bushfires and the coronavirus.)

This explains why the Reserve cut its official interest rate three times last year, dropping it from a record low of 1.5 per cent to an even more amazing 0.75 per cent. Cutting interest rates is intended to encourage people to borrow and spend. So far, however, it’s shown little sign of working.

Similarly, the first stage of the massive tax cuts that were Scott Morrison’s key promise at last year’s election, a new tax break worth more than $1000 a year to middle-income-earners, was expected to give the economy a kick along once people started spending the much bigger tax refunds they got after the end of last financial year.

Despite Treasurer Josh Frydenberg’s confident predictions, it didn’t happen. Why have the authorities had so little success at pushing the economy along? Why did real consumer spending per person actually fall in the year to September?

That’s what Lowe sought to explain to the House of Reps economics committee last Friday. His theory – which he backed up with statistical evidence – is that, the combination of weak growth in wages with falling house prices has really worried a lot of people with big mortgages.

So, rather than increase their spending on goods and services, they cut it and used whatever spare money they could to pay down their mortgage.

In principle when interest rates fall, people with home loans now have more money to spend on other things. In practice, however, most people leave their monthly payments unchanged. The amount they’re paying above the bank’s newly reduced minimum payment comes straight off the principal they owe, thus further reducing (by a little) the interest they’re charged.

That’s pretty much standard behaviour for Australian home-buyers. But this time they’ve also avoided spending their tax refunds, leaving the money in their “offset account”. They may or may not decide to spend it later. But for as long as it’s sitting in the offset account it’s reducing their net mortgage debt and the interest they’re paying.

But get this: not content with those two moves, households have also decided to cut their consumer spending and so save a higher proportion of their income. It’s a safe bet that people with home loans have got that extra saving parked in their offset accounts.

Lowe makes the point that, when worried home-buyers take money sent their way to get them spending and use it to reduce their debt, this does bring forward the day when they feel confident enough to start spending again. That’s true, but very much second prize.

If people with mortgages are feeling anxious, that’s hardly surprising. By June last year, household debt reached a record 188 per cent of annual household disposable income, before falling a bit in the September quarter (see above). About half that debt was for owner-occupied housing and about a quarter for personal loans and credit cards, leaving about a quarter for housing investment debt.

This is higher than in most rich countries, but that’s mainly because of our generous tax breaks for negatively geared property investors, a loophole most other, more sensible countries have closed.

But hang on. Those of us living in Melbourne or Sydney (but not elsewhere in Australia) know that, in response to the recent cuts in interest rates, people have resumed borrowing for housing, causing house prices to stop falling and start rising again.

Is this a good thing? Lowe can see advantages and disadvantages. On the plus side, rising house prices are likely to make people with big mortgages feel less uncomfortable and so get closer to the point where they allow their spending to grow. It also brings forward the day when the building of new homes stops falling and starts rising again.

On the negative side, is it really a great thing for house prices to take off every time interest rates come down? How’s that going to help our kids become home owners?

Lowe asks whether we benefit as a society from having very high housing prices relative to the level of our incomes. “There are things that we could do on the structural side . . . to have a lower level of housing prices relative to income.” They’re much lower across the United States, for instance, even though, by and large, the Americans’ interest rates have been lower than ours.

What are these “things on the structural side” we could be doing to make our housing more affordable? He didn’t say. But I think he was referring to more liberal council zoning regulations and to getting rid of the many tax concessions that favour home owners at the expense of would-be home owners, including negative gearing.

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This country is run for home owners, by home owners

Name a group that accounts for about a third of the population and rising, is much more likely to suffer stress in affording their housing than other groups, and yet has never had much sympathy from politicians, voters or the media.

Ironically, the bit of sympathy they’ve had in recent days hasn’t been warranted.

They’re the forgotten minority – more forgotten than the forgotten people we keep being reminded about. They’re renters.

They get forgotten because we live in a land where home ownership is the only recognised real estate religion. This country is run for home owners, by home owners.

Now, it may have occurred to you that a supposedly sacred group known as “first home buyers” – actually, would-be home buyers - are renters. Surely a fair bit of sympathy exists for them?

Well, not really. We profess to be sympathetic, but we aren’t. That’s because, as economists get tired of pointing out, all the things we do in the name of helping would-be home owners – first home buyer grants or stamp duty concessions, capital gains tax exemptions for owner-occupiers, even negative gearing – actually benefit existing home owners at the expense of aspiring home owners.

These things add to the demand for homes, relative to supply, and thus push up their prices, making them harder to afford.

Politicians are almost always unwilling to help aspiring home owners by reversing these concessions because they know how angry existing owners would be if they did.

But getting back to renters generally, why do we take so little interest in them and their problems?

Partly because, in a world that values home ownership above all else, renting is assumed to be just a brief transitional state while young people get together the money for a deposit.

Unfortunately, that assumption gets less true as each year passes. When I became a journo in the mid-1970s, we were particularly proud of Australia’s 70 per cent rate of home ownership. It’s been declining, slowly but inexorably, ever since.

Meaning the proportion of renters has been growing ever since. A lot of people still attain home ownership, of course, but it takes them many years longer.

The other reason we take so little interest in renters is that, since almost all of us aspire to own our home, those who never make it – those who stay renting all their lives – are those never able to afford it. And who spends much time worrying about the poor?

But this, too, is becoming less true as the years pass, with a lot more middle-income earners spending a lot more of their lives in rented accommodation.

In the day, we used to rely on “the housing commission” to take the poor off our conscience. In the years since then, the enthusiasm of governments, federal and state, for what we now euphemistically call “social housing”, including “affordable housing”, has steadily diminished – further demonstrating our lack of interest in renters.

The latest report from HILDA – the long-running, government-funded survey of Household, Income and Labour Dynamics in Australia – includes a most informative chapter on renters, by Professor Roger Wilkins, of the Melbourne Institute at Melbourne University.

Wilkins confirms that renters of social housing are 10 percentage points more likely to experience financial hardship than people who own their homes outright. But renters of private housing are 15 percentage points more likely.

HILDA defines “housing stress” as households in the bottom 40 per cent of the distribution of household incomes who spend more than 30 per cent of their income on mortgage payments or rent. (Plenty of high-income households spend more than 30 per cent, but that’s a choice they can afford.)

The proportion of private renters suffering housing stress rose from almost 18 per cent after the turn of the century to 20 per cent by the end of the decade, but hasn’t increased since then.

Of late, some sympathy has been expressed for renters, who must be suffering huge increases in their rent as house prices in Sydney and Melbourne have soared.

Sorry, I’ve looked up the consumer price figures and they don’t compute. In Sydney, over the four years to June this year, the prices of newly built dwellings bought by owner-occupiers rose by almost 20 per cent, whereas rents rose by less than 10 per cent – not a lot higher than the rise in all consumer prices of 7.5 per cent.

In Melbourne, new home prices rose by more than 16 per cent, whereas rents rose by less than half that – only a fraction more than consumer prices generally.

But if soaring rents don’t explain renters’ high rates of financial and housing stress, what does? Their generally low and lower-middle incomes, which have probably worsened somewhat, relative to the rest of us, so far this century.

Note that housing stress is surprisingly low among people of retirement age. That’s because this is the group with by far the highest rate of outright home ownership. The modest level of the age pension takes this fact into account.

But that means those relatively few pensioners who rent privately do suffer much hardship. When a spate of complaints about the inadequacy of the single age pension prompted an investigation, it found that only single pensioners in private rental were doing it tough.

Kevin Rudd responded with a big one-off increase for all single pensioners, plus an increase for married pensioners so they wouldn’t feel left out. As I say, renters don’t count.

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