Many young Australians have a dream of one day owning their own home, however this dream is fast turning into a nightmare for some.
Homeowners no doubt cheered the news this week that capital city home prices rose 10 per cent last year.
But for Generation Rent, we just shrug our shoulders. It seems a period of below average house price growth, in which we would slowly cobble together that deposit, was just too much to ask for.
The hurdle has been raised, yet again.
Prices in Sydney and Perth are now back at record highs. Sydney house prices soared by 14.5 per cent last year, followed by Perth 9.9 per cent, Melbourne 8.5 per cent, Brisbane 5.1 per cent, Canberra 3.5 per cent, Darwin 3.3 per cent, Adelaide 2.8 per cent and Hobart 2.2 per cent.
Melbourne prices are now only 0.7 per cent below their peak, Adelaide 2.4 per cent, while Brisbane prices are still behind 6.6 per cent and Hobart 12 per cent.
At the national level however, the 9.8 per cent growth in home prices last year was the biggest annual rise since 2009. That was during the depths of the global financial crisis when the Rudd government unleashed its stimulus package, including a doubling of the first homebuyers grant which sent prices soaring by 14 per cent.
Really, it should just be called the first home sellers grant, because all that money does is push up prices.
When economic uncertainty threatens, policy makers have realised that nothing bucks up the Aussie national spirit like higher house prices – no matter the cost for would-be first time buyers.
The Reserve Bank is at it again, dropping its official cash rate to its lowest since 1959 in an attempt to revive lagging household spirits.
Reserve Bank governor Glenn Stevens has weighed the risks, and decided the risk of unleashing a housing bubble is less than the risk of rising joblessness and a slowing economy if rates are not cut.
You might think lower interest rates are good for borrowers, but the higher house prices that result only make the hurdle for homeownership that much higher.
Once again, first home buyers are the sacrificial lamb sent to slaughter.
Why should we care? We should care because our housing system risks entrenching deep inequalities of wealth in our society and undermining the “fair-go” for all.
Rich kids will always have rich parents to help them up on to the property ladder. But what about the rest?
We are breeding a generation of housing haves and have nots.
I have previously written in favour of renting. Or rather, against the perception that renting is evil.
Rent money may be dead money, but so too is interest paid to a bank. Either way, you’re going to pay for your housing.
If you rent and save additional income, you’re essentially doing the same thing as paying interest on a loan and paying off your principal.
Except that our tax system heavily rewards home ownership.
Capital gains made on your family home are tax free, whereas interest earned on money sitting in the bank is taxed at your full tax rate.
Assuming you can afford the deposit – a huge assumption – and assuming that house prices and bank deposits returned about the same annual growth, you’d be better off in property, simply because of these tax breaks.
Of course, negative gearing only adds fuel to the fiery attraction of housing as an investment.
And so our dream of homeownership is deliberately stoked by federal tax policies that only serve to inflate prices even further.
Other levels of government also wear blame for the unaffordable state of Australian housing.
Cash strapped state governments load property purchases up with expensive stamp duties. Local councils, too, add their own fees and charges on new developments.
State governments fail miserably in their responsibility to provide adequate public transport to new housing areas, putting a premium on well-located land.
And local governments, who ultimately approve new developments, are hopelessly captured by the interests of NIMBY (Not in my backyard) existing homeowners and ratepayers.
There’s no easy way to unscramble our housing mess. Abolishing stamp duty – a tax on moving – and replacing it with a broad based land tax – based on the wealth stored in a property – would be a good start.
Policies to force greater urban infill and higher density housing along established transport routes would also help.
It’s time we thought harder about how to relieve the housing affordability crisis, or for generations of young Australians the dream of homeownership will remain just that: a dream.
Original article published at www.news.com.au by Jessica Irvine, National Economics Editor, News Limited Network 5/1/2014