Affordability, by definition, is house prices relative to wages. Therefore, to improve affordability, either prices need to decrease or wages need to increase. Given the Rudd Government�s concern for inflation, rightly in my view, it is very unlikely that they will support a rapid escalation in wages � in fact, wage freezes seem to be the order of the day.
That just leaves decreasing house prices. And this is where the inter-generational conflicts, and the political difficulties, arise. But this is where the mostly younger first home buyers need to get vocal and make their views heard.
That is why I have provided proforma letters on this site to both the Prime Minister of Australia, Mr Kevin Rudd MP, and to the State Premiers, which can be printed, signed and posted. We need to ensure that they come to understand just how many peoople are angry with, and want to see significant changes to, housing policy in Australia. Moreover, we need to constantly remind them it will cost them votes in upcoming elections if they do not back up their rhetoric with action.
The solutions go back to the straightforward economics discussed above � we need to increase supply of new housing and reduce investor demand for existing housing. But I would hasten that I am against distorting the housing market. My main point is that the issues discussed earlier are actual distortions in Australia�s housing markets which, if removed, would make a significant and timely improvement to housing affordability in Australia.
I recognise that, if and when a correction occurs, there are likely to be significant calls to �place a floor� under asset prices in the guise of economic stability. However, ensuring that there is a free property market so that Australians can purchase a home at a fair price will be of enormous socioeconomic benefit over the long-term, irrespective of short-term disruptions. Afterall, it is difficult to imagine an economy full of people up to their eye balls in mortgage debt being able to afford much other than their house repayments - it is not a recipe for a healthy economy, let alone society!
Importantly, the First Home Savers Scheme will not help first home buyer affordability if it is not backed up by other major policy initiatives.
This is clearly the view of the Reserve Bank of Australia (RBA) as a paper from Anthony Richards, the Head of Economic Analysis Department, Some Observations on the Cost of Housing in Australia, concludes "On the demand side, it is now widely accepted that policies that simply give people more money to spend on housing are likely to be capitalised into higher housing prices." |
