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The grim reality of Australia’s housing crisis for young people

Young people are waiting longer and spending more on housing than their parents and grandparents.

Young people are waiting longer and spending more on housing than their parents and grandparents. Photo: Getty

The belief that young people can go without luxury items to fund their first house may live on for some, but the goal of owning their own home is becoming increasingly impossible for many young Australians.

Coposit, a company dedicated to underwriting deposits so people can enter the housing market, has interviewed people on the street about how much their first property costs and how much young people have saved.

One man told Coposit that he bought his first house in 1981 for just $16,000.

“You can’t buy a car for $14,000 or $16,000,” he said.

“I just saved the deposit of $4000, borrowed $12,000 and paid it off quickly.”

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In his January piece for the Quarterly Essay, economist Alan Kohler breaks down just how much more difficult it has become for young people to buy a house compared to his experience.

He said when he bought his first house in 1980, he paid around 3.5 times his salary for it, while his wife was earning a similar salary.

“Over the past four years, our three children and their partners all bought their own first houses,” Kohler said.

“They’re doing it later than we did, and much later than my parents, so they’re making better money, and both partners are working, of course, but they paid about 7.5 times each income for their houses.”

Outright home ownership has halved for 25 to 54-year-olds from 2001 to 2021, while the amount of retiree-aged Australians with mortgages has ballooned.

Kohler said Australians are spending nearly 7.5 times their income on housing, compared to just 3.5 times when he bought his first house. Photo: AAP

Vested interest

Around 66 per cent of Australians own their home, making any policies that drive down house prices politically risky.

Kohler said high house prices do not create wealth, but merely redistribute it.

“We can only buy other expensive houses: sell your house and you have to buy another one, cheaper if you’re downsizing, more expensive if you’re still growing a family,” he said.

“At the end of your life, your children get to use your housing wealth for their own housing, except we’re all living so much longer these days it’s usually too late to be useful.”

Australia’s political class is heavily incentivised to keep housing prices high because they own multiple investment properties.

Kohler said the growth in the value of Australian land “has fundamentally changed society”.

“Generations of young Australians are being held back financially by the cost of shelter, especially if they live somewhere near a CBD and especially in Sydney or Melbourne,” he said.

“Education and hard work are no longer the main determinants of how wealthy you are; now it comes down to where you live and what sort of house you inherit from your parents.”

He said a sharp lift in immigration, capital gains tax breaks and negative gearing, federal first home buyers grant and supply issues have pushed up demand after the year 2000.

The future

Most experts agree with Kohler’s assessment that tax breaks and a failure to deliver supply into the housing market have created the crisis.

They’ve also panned the Liberal Party’s proposal of allowing people to raid their superannuation funds for a deposit, while arguing Labor’s signature housing policy will deliver too little, too late for the vast majority of Australians.

“The way real estate works in Australia is that the federal government and banks encourage demand for it and state and local governments restrict the supply of it,” Kohler said.

“If governments caused the problem, can governments fix it? Theoretically yes, but it’s politically easier to make an asset worth more than to make it worth less.”

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