WHEN house prices soar, you can hear the silent cheering all around you. Most of us own homes, so rising prices increase our notional wealth. They mean someone else will have to pay us more in future to buy our homes.
Market analysts and the media bombard us with data on what are the "best-performing suburbs" meaning the suburbs where prices rose most. They see it as self-evident that rising prices are a good thing and the higher, the better for us.
Well, sorry, but they're wrong. Rising prices may be good for those of us who own homes but far less than we assume. And they are not good for "us" as a society.
Let's be blunt. No social change in recent times has done more to make younger Australians worse off than the waves of house price rises since late 1987, when Labor restored the tax break for negative gearing.
Since September 1987, the Bureau of Statistics tells us, average house prices in capital cities have risen by 433 per cent. In other words, a typical house that was an affordable $100,000 in September 1987 cost $533,000 by December 2009.
But haven't incomes risen too? Yes, they have: but by only 195 per cent. So if a typical household had a disposable income of $30,000 in September 1987, it has risen to $88,500 now. (There are no figures for median household disposable incomes, but these are in the right ball park). The cost of a typical home, in this example, used to be 3.33 years' disposable income. But now it costs six years' income.
All in favour, raise your hands.
I don't see too many younger readers raising their hands. We all know why. If rising house prices make you and me as homeowners better off, they make our kids worse off. It's a zero sum game: we win, they lose. The bar they face to buy their first home is now almost twice as high as it was in 1987.
That's the first reason why higher house prices don't work for us as a society. They raise barriers to home ownership, and make it more difficult for people with low incomes or small savings to own their own homes.
Australia has traditionally been a nation of home owners, but that is changing rapidly. In the 12 years to 2007-08, the bureau estimates, the proportion of 25 to 34-year-olds who owned their home fell from 52 per cent to 43 per cent. Among those aged 35 to 44, home ownership fell from 73 per cent to 65 per cent.
By contrast, the proportion of over-55s owning their own home fell only marginally: from 85 per cent to 83 per cent. They already owned their homes when the game began, and if they moved, it was to downsize. They were the winners.
Let's note that those were the 12 years the Liberal party was in power a party that once believed in home ownership for all. Now, like the Labor Party, it believes in tax breaks to spread home ownership by landlords.
Since Labor restored the tax break for negative gearing, tax records show, the number of landlords has trebled to more than 1.6 million, while their declared losses have multiplied to more than $10 billion a year. The tax break means about $4 billion a year is paid for them by other taxpayers.
Do you see what I mean about what is good for you and me being bad for us?
But let's note one other crucial thing: the only home owners who really win out of higher house prices are those who are selling to move down in the housing market. Higher house prices widen the gaps in the market, so downgraders pocket more money when they sell the big old home to move somewhere smaller.
By contrast, upgraders despite being home owners already are made worse off by rising prices. They now face a bigger gap between what they receive for their old home and what they must pay for their new one. They too are losers from the rising prices we keep being urged to celebrate.
Rising prices are inflation. We don't think higher petrol prices or higher fruit prices are a good idea, although they certainly make someone better off. Why do we think inflation is such a good thing when it applies to owning a home?
This is one area of policy where government intervention has made things worse for the group they say they want to help: aspiring home owners. That is clear from the sharp fall in home ownership among younger age groups (indeed, among all age groups under 55). Unless policies change radically, it will continue to fall, as Australia is slowly transformed into a society of landlords and tenants.
The first step is that we must stop cheering rises in house prices. They make the problem worse. If governments seriously want to put the broader interests of society first in housing policy, they must understand that their long-term goal is to reduce house prices significantly, relative to incomes. Let's go back to fundamentals. Housing prices rise because there is a gap between demand and supply. If more people want to buy homes in an area than there are homes to buy, prices will rise. If supply of homes rises relative to demand, prices will fall.
Isn't it obvious? Government policy, at all levels, should aim at increasing the supply of new housing. That is what will make housing affordable.
Instead, with some exceptions above all, the federal government's social housing initiative to build 19,400 affordable homes its spending and tax breaks mostly increase demand.
Young Australians have been let down by governments of both sides. It's time to right the wrong.
