“I don’t get people stopping me in the streets and complaining that the value of their house has gone up”—so said then Prime Minister John Howard in 2003, when asked about house prices that had jumped 109 percent since 1995. Howard’s implication was that all homeowners were benefiting from the increasing cost of housing, with “ordinary mums and dads” living in properties that had made them millionaires.
If that was true then, it should be even more the case today. According to data from the Australian Bureau of Statistics (ABS), house prices in Australia have increased 412 percent over the past 25 years. The 2023 edition of the Demographia International Housing Affordability report found that we now have the third most expensive market in the world.
Take Sydney as an example. The average cost of a house there went from $211,000 in 1970 to $1.1 million in 2020 (adjusted for inflation), or from 4.5 times the average annual wage to over 12. There was a dip in prices as interest rate rises started to bite in late 2022, but they are going up again, with Sydney prices increasing 4.8 percent from January to May this year. According to ABS data for the 2019-20 financial year, homes make up the single largest portion of household wealth, at 40 percent, with superannuation second at 18 percent.
Going by those figures, Australian homeowners have never had it so good. But a survey conducted in 2021 showed that more than 70 percent of Australians were either “worried” or “very worried” about the current housing market, and 92 percent agreed that property prices were unaffordable. That we can have record prices coupled with such high levels of anxiety raises the question, who is really benefiting from rising house prices?
The short answer is: it’s split along class lines. On one side, constituting the majority, is the mass of mostly working-class households that own a single property that they live in. On the other side is the relatively small number of wealthy households that own two or more properties, along with major housing industry players like the big banks and property developers. As we’ll see, it’s not working-class households that are doing well out of Australia’s unaffordable housing market, it’s the rich.
In the post-World War Two decades, home ownership in Australia reached 70 percent, having been made a focus of government policy and being subsidised under Liberal Prime Minister Robert Menzies.
That policy changed in response to the economic downturn of the 1970s. As profit rates fell, government spending was cut back, budgets for public housing were slashed, and access to housing was left to an increasingly deregulated market. Under the Labor government in the late 1980s, tax concessions and low interest rates sparked a rush towards speculation in the property market by the rich and upper middle class. That rush became a stampede under the Howard government in the late 1990s, as further discounts on capital gains tax made property even more lucrative for investors and house prices rose sharply.
Though the increase in house values has been driven by government policies in the interests of capital and the wealthy few, there are now many working-class households that own properties worth over a million dollars, so haven’t they benefited from the extraordinary price increases?
It seems intuitive that they would have. The most obvious counter point, though, is that if the value of your house has gone up by 50 percent, then so has the house next door and all the other houses in the market. Given you need somewhere to live, if you own only one property, there’s no real benefit in being able to sell your house for more money if the house you are going to buy has gone up by the same amount.
At the same time, a smaller number of people own their homes outright—down, according to the Australian Institute of Health and Welfare, a federal government agency, from 42 percent in 1996 to 31 percent in 2021—and the number of people owning with a mortgage rising to 35 percent. Most people can buy only with a mortgage, so higher prices mean more debt and the insecurity of interest rate changes. Figures from the Bank of International Settlements show Australia has the second highest household debt in the world, and the average mortgage needed to buy a house sits at $584,000, according to the most recent data from the ABS—up 20 percent on pre-pandemic levels.
Modelling by the Australian National University’s Centre for Social Research and Methods shows mortgage costs as a share of income are now at their highest level since records began in 1984, and the average mortgage holder pays 25 percent of their disposable income towards debt. The burden is much greater for low-income households, which lose more than 50 percent of their income to mortgage repayments.
Even before the latest rate increase, research by Roy Morgan found that more than 1.2 million households were at risk of mortgage stress. That number is likely to balloon as 800,000 households come off fixed interest rates on 1 July. Suburbs like Lakemba and Fairfield in Sydney and Flemington and Caulfield in Melbourne are estimated by financial advisory company Otivo to have mortgage stress rates of over 50 percent.
One thing that could be seen as a benefit for working-class people is the capacity to pass down high-value properties to their kids, or to assist them in gaining a foothold in the property market. But to the extent that passing on a property brings any benefit, it would be the same whether average house prices were $100,000 or $1 million.
It’s arguably a worse situation overall when house prices are higher, because working-class homeowners are increasingly forced to assist their children financially, who are otherwise shut out of the market. Data compiled in 2022 by Digital Finance Analytics, a consultancy, showed that 60 percent of first homebuyers needed assistance from their parents to fund a deposit for a loan, the amount needed increasing 10 percent from the year before. Is it really such a “benefit” to be able to use money that could alternatively have helped fund a more comfortable retirement to help your kids make the deposit on a huge mortgage that they will be burdened with for decades? A real benefit to working-class households would be their children being able to afford a home without needing this kind of assistance from their parents.
The reality, then, of increasing house prices is that they leave working-class homeowners treading water at best, and the working class as a whole significantly worse off.
It’s a very different story, though, on the other side of the class divide—like the 15 percent of Australian households that, according to research published in the journal Housing Studies in 2019, own one or more investment properties. These are not the “mum and dad investors” of political myth. They are largely high-wealth and high-income households, surgeons, barristers and accountants being the professions most likely to count among property investors. The ownership of property within this group is highly concentrated, too, among the wealthiest few. The majority of investment properties are held by a minority who own two or more, and recent data from the Australian Taxation Office, reported in the Guardian, shows that just 1 percent of taxpayers (7 percent of property investors) own more than 25 percent of all investments.
The benefit of rapidly rising house values to this group is obvious. They are able to sell their properties at an increased price, and the negative gearing and capital gains tax concessions available to them mean big returns on their investment. As landlords they can also make money from rent and, unlike households that live in the one property they own, can easily manage higher interest rates by simply passing on the cost to tenants.
Included among the small number of wealthy investors getting rich from higher house prices and rents are many federal Labor MPs, over half of whom, according to a list compiled by Crikey, own one or more investment properties. Anthony Albanese owns two, Tony Burke owns four (plus another two he lives in) as does backbencher Michelle Ananda-Rajah (seven if you include those owned by her partner). While they’re offering very little in the way of funds to fix the housing crisis, the property investors who make up the majority of federal Labor MPs recently endorsed a budget that continues tax concessions for landlords like themselves worth more, according to Treasury department figures, than $100 billion over the next four years.
Another tiny section of society that’s doing well from unaffordable house prices is banks, which currently hold an extraordinary $2 trillion in mortgages. Higher house prices have forced households to borrow more and more to purchase a home, and this has meant huge profits for the banking sector. The recent rises in interest rates have supercharged those already big profits: the “big four” banks made a record $17.1 billion profit in just the first half of the 2022-23 financial year.
Finally, there are the property developers—massive companies like Meriton, owned by billionaire Harry Triguboff, who recently asked of a Sydney council opposed to his proposed 800-apartment development “Who are they to stop me?”. Big developers have made billions from building low-quality, high-priced houses and apartments. In 2019 alone, Meriton made $1.9 billion while rival developer Mirvac posted profits of just over $1 billion. As a group, developers have consistently lobbied against policies that would lower house prices—like removing tax concessions or building public housing—and instead focused on cutting planning regulations and other forms of “red tape” they see as hindering their profit-making potential.
The huge investment in property speculation over the past 30 years has pushed prices ever higher and delivered massive profits to banks, developers and other major industry players and increasing wealth to the richest section of society. The party can go on only so long, however. Continually rising prices have been fuelled by cheap credit, but as we’re seeing today, that credit won’t stay cheap forever. If prices fall and debts are called in, the market can plummet.
Is that when workers will finally see some benefit? Unfortunately not—the bust that must eventually follow the boom is perhaps the most important reason that working-class homeowners do not benefit from higher house prices. It’s not the rich, after all, who will bear the brunt of any crash, but working-class people who, in the worst-case scenario, will stand to lose their homes and livelihoods. We have seen what happened in the US during the Global Financial Crisis of 2008-09—ten million people losing their homes while the banks and the rich were bailed out with public money. Were a similar crisis to break out today, we should expect to see this phenomenon of “socialism for the rich and capitalism for the poor” repeated.
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