According to the Australian Bureau of Statistics, residential property prices surged 23.7 per cent last year, the strongest annual growth since records began. A recently released report from ANZ Bank found that across Australia prices have increased 8.1 times faster than household income, with Australians needing to use 39.3 per cent of their income to service a mortgage after spending 10.8 years saving for a deposit.
In Sydney, the statistics are more bleak. People who want to live in Sydney need to save for 16.6 years (if saving 15 per cent of their gross annual income each year) while spending 60.4 per cent of their annual income a year once they have a mortgage.
Not surprisingly, homeownership rates for 25 to 34-year-olds in Australia reportedly have nosedived from 61 per cent in 1981 to about 37 per cent today.
The unaffordability of housing has some serious hidden costs that are rarely acknowledged and discussed, the most profound being that the rising cost of housing is discouraging family formation. In 1976, in Australia, 48 per cent of couples had children living with them at home. In 2016, that figure had declined to just 37 per cent.
A 2016 study conducted in Britain found that after controlling for other variables, a 10 per cent increase in home prices correlated with a 1.3 per cent decrease in birthrates. Studies in the US have shown remarkably similar results, with the relationship between housing prices and birthrates being stronger than unemployment and birthrates.
Renting and birth rates
In Australia, rising house prices boost fertility in married couples who already own their own homes. But for renters, rising house prices and rising rental costs are a strong disincentive to having a baby. Because young people are likelier to rent than own their own homes, this results in a decline in the national birthrate overall.
And like home ownership, the birthrate has been plummeting. In 2010, the fertility rate in Australia was 1.95 births per woman; in 2020 it had dropped to 1.58. Despite the coronavirus pandemic forcing everyone to stay home in 2020, a rise in births did not occur.
Australians report that they would like to have more children than what they currently have. We know this because the University of Melbourne has been surveying a large cohort of Australians across a long time frame about such questions in the HILDA (Housing, Income and Labour Dynamics in Australia) study. The HILDA study has found that of the women surveyed at age 35, one in four was hoping to still have one child or more in the future. But when surveyed again at age 49, more than half of these women had not had the number of children they had hoped for. A similar result for men is observed.
In Australia, the declining birthrate and its drain on the economy is generally papered over by our high immigration intake. But high immigration puts additional strain on an already overstretched housing market, driving up prices and rents further. The very high prices show that demand for housing is outstripping supply. And while high immigration is good for employers and landlords, it isn’t great for renters or first-time home buyers.
The reality is that locking young people out of the housing market – which has the knock-on effect of discouraging family formation – is likely to have disastrous long-term political consequences.
Australia has been fortunate enough to have withstood the populist revolts that have rocked the US and Europe during the past 10 years thanks to a combination of good economic management and a strong social safety net. But success can lead to complacency.
The statistics are stark. A substantial portion of the population in Australia will never own a home and will never have children, and it is not for want of trying or for lack of aspiration.
Rising house prices will damage our social fabric if it leads younger generations to feel the game of life is rigged against them. Young people are already starting to express resentment towards older generations. It is only a matter of time before this sentiment is exploited by unscrupulous actors.
Going into the next election, housing affordability should be top priority for both sides of the political aisle.
For the left, this is simply a matter of equality and fairness. We should not allow our proud egalitarian society to devolve into neo-feudalism where landowners extract the bulk of productivity gains from the economy, relegating workers to serfdom.
On the other side of the aisle, home ownership should be perceived as undergirding family formation – the building block of a stable, healthy society. While young people tend to become more conservative as they get older, this natural process of maturation will not occur if a generation has nothing to conserve.
Claire Lehmann is founding editor of Quillette, a platform for free thought.
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Across the Western world wealth inequality is being usurped by housing inequality as the most reliable indicator of disparity in society. For many people of my generation – especially those who wish to start or expand their families – housing affordability is likely to become the single most important issue for them in federal and state elections.