It goes without saying that the value of residential real estate has skyrocketed over the past couple of decades to a level that is simply unaffordable for many of our younger generation. – and that is causing societal problems, one of which is a low birth rate. If one can’t afford a home and both parents need to continue working to meet general living expenses, many couples would conclude that they just can’t afford to start a family.
To solve the problem, we need to first understand the main causes of the significant increase in the value of residential real estate. These are lower interest rates, our population increasing a lot faster than the increase in our housing stock, and inflation.
Lower interest rates result in lower interest payments, which enable people to borrow more to buy a home. Older Australians (50 years +) could, for example, have bought their first home in the mid- to late 1990s when interest rates were 10%. Rates dropped progressively thereafter, reaching a low of about 2% during the Covid years. On the same income, a person can afford a home loan that’s 5 times bigger when rates are 2%, than when they are 10%. Assuming they can afford the higher ‘deposit’, they could pay 5 times more for a property.
Population growing faster than the increase in housing availability in the areas where additional people want to live, increases demand for housing in that area, which in turn increases prices. Australia’s population increased by some 8 million people since the year 2000 – that’s nearly 14-fold more than the current population of Tasmania. That obviously puts a lot of upward pressure on house prices but is offset to some extent by the increase in the number of homes. While data on new dwellings is confusing because it includes small flats and apartments people generally do not want to live in long-term, it is generally accepted that the number of additional homes is significantly lower than the number needed to meet the population increase.
Inflation has increased the cost of everything, including the value of assets. It is basically caused by government overspending and increasing money supply to fund that excess. Interestingly, the increase in money supply corresponds with the increase in the value of residential properties.
With a general appreciation of the main causes of higher property prices, we can consider what needs to be done to increase housing affordability. People would be able to pay more for a home if their living costs were reduced, they were able to retain more of their income, and the demand for housing reduced while the supply of housing in the same area increased.
Classic Liberals Australia will do far more on housing affordability than any other political party. This it will do by:
- Significantly reducing the cost of government, allowing it to significantly reduce the taxes government needs to collect,
- Abolishing compulsory superannuation – increasing the amount of their income people can use to buy a home,
- Reducing inflation and stopping the value of our money deteriorating, which it will do by stopping government manipulating the economy by, for example, printing money to stimulate it.
- Reducing the cost of electricity and gas – by abolishing ‘green-energy taxes’ et al,
- Abolishing Transfer Duty – Those still working want to live not too far from where they work and where they want to send their kids to school and university. Those suburbs are largely fully developed. Small apartments in mid to high rise buildings are being developed in suburbia but they’re not attractive to families or those aspiring to have a family. We need to encourage retirees to move into Regional Australia or outer suburbs, enabling others who need to be closer to work, schools et al to find suitable homes to buy. A major impediment to retirees selling to buy further out, are the costs involved, in particular the Land Transfer Duty. In Victoria the duty is 5.5%. So, if the retirees sell their $2.0 million home in suburbia, the buyer needs to pay the State $110,000, and if the retirees use the entire sale proceeds to buy a property further out, they pay the State $110,000 on that purchase. So, the retirees in suburbia get $110,000 less for their property and then pay the State $110,000 on the property they buy in the regions. That’s a loss of $220,000 to the retirees, which is a huge impediment to selling. If transfer duty were eliminated, people would be far more inclined to sell up and move out of the city, enabling the younger generation to acquire a home nearer their places of work and nearer schools and universities.
- Significantly reducing immigration, and
- Increasing the availability of housing stock – through reducing unnecessary bureaucratic requirements and improving approval efficiencies – basically as far as reasonably possible getting government out of the way.
The prospects of getting ahead and getting a lovely home to raise a family, are far better with a Classic Liberals Australia government.