Housing costs crisis needs ‘decades’ of falling prices
Australia’s housing crisis may need to continue for another generation before homeownership becomes affordable again.
According to data agency Cotality, house prices fell 0.4 percent nationally in June, following a 0.3 percent drop in May.
But housing expert Peter Tulip said Australia’s decline in recent months had barely eroded the affordability gap that had built up in the years when house prices outpaced wage growth.
“We’re going to need this for decades to come,” the chief economist at the Center for Independent Studies told AAP
“We need this to continue for another generation or two before people start thinking the housing crisis is over.”
Following the Federal Reserve’s three rate cuts, increased affordability restrictions and the federal government’s changes to tax breaks for investors, there has been a decline in buyer sentiment and liquidation rates have fallen below 50 per cent in successive weeks.
But Domain chief economist Nicola Powell said the extent of the crisis remained modest.
Prices in the capital would need to fall by approximately 22.8 percent to return to their previous low in March 2023; This is far beyond anything seen in three decades of housing cycles.
When Dr Powell analyzed eight price cycles since the mid-1990s, he said housing booms tended to be longer and steeper than later downturns.
The former Central Bank economist says two dynamics in the crisis tend to create a floor below prices: homeowners are pulling back from selling; and the construction industry’s limited ability to build new housing restricts supply.
Dr Tulip said undersupply of homes remained the key problem making housing unaffordable.
Still, he said falling home prices is good news.
“And I really don’t understand why the government wouldn’t welcome this,” he said.
“How can you say that housing is too expensive and you don’t want the prices to be lower?”
Opposition Leader Angus Taylor attacked Prime Minister Anthony Albanese over price falls during question time on Wednesday, asking whether he would guarantee house prices would not fall further.
The coalition claims the crisis will push homeowners into negative equity if the debt on their property is greater than its value.
Cotality research director Tim Lawless said there was a risk of equity falling into negative for first home buyers accessing the government’s five per cent deposit guarantee scheme if prices fall further.
But he said it wouldn’t be a big problem unless the owners were forced to sell, which would be a relatively rare occurrence given the strong labor market and Australia’s strict lending rules.
Dr Tulip said there was no possibility of significant mortgage defaults anywhere in the outlook.
“Opinion polls show that the vast majority of voters, including the vast majority of homeowners, want lower prices,” he said.
Independent senator David Pocock said the work had just started on housing and called on the government to increase investment in social and affordable housing.
He is set to introduce a bill in the Senate on Thursday that would force developers to set aside 30 percent of homes for affordable housing on land sold by the federal government.
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