It’s time we solved our housing price problem, but who’ll do it?

With the mortgage cliff only three months away, when around 800,000 borrowers go from low fixed rate loans to high variable rate loans, it’s expected that demand will be squeezed for those who see their home loan repayments literally go through the roof.

The SMH has reported that “KPMG Australia chief economist Brendan Rynne said with the average mortgage now $600,000, a person with a fixed-rate loan faced a $16,500 after-tax increase in interest payments over 12 months, once their mortgage rate was reset”.

This will not only kill demand but also inflation. Undoubtedly, it will start the price of houses to fall again. In case you missed it, house prices stopped plummeting in February.

The website says the “CoreLogic’s Hedonic Home Value Index has recorded its smallest fall since interest rates started rising in May last year, at just 0.1 per cent for February. While the rival PropTrack index, using a slightly different methodology, is even more upbeat, recording a 0.2 per cent bounce in home prices nationally last month.”

Interestingly, we haven’t seen the 20-30% house price falls predicted by some alarmist commentators, but the mortgage cliff could help them end up being right. At the moment, Sydney house prices are off 13.4% for the year and Melbourne prices are down 9.6% but the national drop is only 7.9%!


How did that happen, with 10 interest rate rises? Well, firstly, a lot of people are now on fixed rate home loans so the rises haven’t bitten yet. “According to analysis from AMP Capital, fixed lending usually makes up 10-15 per cent of the total mortgage market, but that number quadrupled to over 40 per cent last year,” has revealed.

But another big reason is that there is an undersupply of homes for sale. “The past four weeks have seen the flow of new capital city listings tracking -17.0 per cent lower than a year ago and -11.9 per cent below the previous five-year average,” CoreLogic’s research director Tim Lawless told the ABC. “This trend towards a below-average flow of new listings has been evident since September last year, coinciding with a loss of momentum in the rate of value decline.”

Supply of housing is a big national issue and the NSW election result might mean something for this problem.

When 2GB’s breakfast host Ben Fordham asked me last Friday who I thought would win the NSW election, I said Labor’s Chris Minns. I cited a survey that showed a huge number of voters (85%) thought the Coalition had a bad energy policy. It was the cost of living that the media pinpointed as one of the key reasons why Premier Perrottet was shown the door.

Interestingly, the new Premier has made promises about arguably the most important hip pocket issue most Australians care about — the price of property. As a pitch to voters, Chris Minns put forward a first homebuyers’ scheme to remove stamp duty on properties up to $800,000 and a discounted rate on properties up to $1 million. He backed a build-to-rent pilot to increase rental supply on the NSW south coast and he wants to outlaw evictions from rentals unless on “reasonable grounds”.

These are all sound ‘nice’ but do they help knock out the supply of homes problem? I don’t think so.

All governments and would-be governments chase first homebuyers and make heaps of promises to make housing cheaper, but no one ever seriously addresses the real reason why houses are so dear in Australia — there’s an undersupply of the suckers! And no government ever comes up with a fair dinkum solution to the problem.

There are lots of reasons for our housing problem but at the core, there is an antagonism towards developers/builders and landlords, who ultimately are the providers of supply. There’s a rough calculation that governments at all levels make home construction about 30% more expensive than it has to be because of taxes, levies and charges on those brave enough to want to build places for people to live in.

PEXA and Longview looked at the issue and came up with the following reasons:

  1. Australia’s unusually high population growth and increasing urban concentration have a large effect on house prices.
  2. The scarcity of well-located residential land means many homebuyers are missing out on the benefits of city living.
  3. It’s often assumed that interest rates are the primary driver of house prices but this isn’t backed up by the evidence.
  4. Government ‘affordability’ policies have had surprisingly little impact on house prices over decades.
  5. Understanding what is unique about the Australian property market is critical to developing solutions that will work.


LongView and PEXA identify three related housing crises in Australia – purchase affordability, rental affordability and rental experience. Their research says house prices have grown much faster than incomes in recent decades, with prices rising at a compound annual growth rate of 7.2% since the 1960s, which is much quicker than the growth of wages.

Trading Economics says our wage growth averaged 3.06% from 1998 until 2022, reaching an all-time high of 4.3% in the fourth quarter of 2008 and a record low of 1.3% in the fourth quarter of 2020. Meanwhile, the Australian Housing and Urban Research Institute analysis says “…at a basic level, Australia needs sufficient new housing to house the nearly one million new households formed between the 2016 and 2021 Census; an 11.9 per cent increase (or an average of 197,826 households per year)”.

One interesting problem is the fact that there has been a 17.1% rise in the number of single person households between 2016 and 2021 Censuses!

In contrast, the number of new residential dwellings didn’t keep up with the number of new households, increasing by only 10.6% or around 198,000 new dwelling each year, which is a long way short of one million!

The Albanese Government is backing a housing program that would only make 30,000 affordable homes over five years, but the Greens want a minimum of $5 billion invested in social and affordable housing every year. They argue the 30,000 homes to be built over five years are well below what’s needed and the $500 million annual spending cap is too restrictive.

Governments are never going to deliver the homes to house the growing population of Australia and it’s time they recognised that it will be private individuals — developers, builders and landlords risking their money — who will have the best chance to put Aussies into the basic need of shelter.

And that’s my point — the providers of property need shelter from the tax slugs that stop places being built. A 30% slug on developers/builders gets passed on to buyers and forces a lot of people into rental housing.

This is where landlords play an important role, with governments missing in action. It’s so obvious. All we need are politicians with the courage to tell us all that developers, builders and landlords are the solution and not the problem.


Source – Switzer Daily, by Peter Switzer, 27 March 2023