Housing affordability

Jessica Irvine in Housing outlook remains grim for the forgotten people notes that buying their first home is still impossible for a third of households.

A lot has changed since the global financial crisis hit Australian shores in late 2008. For the third of households who own property outright, the news has been good - homes have largely retained their value. For the third of households paying off a home loan, the news has been similarly positive - mortgage interest payments have fallen dramatically.

But for the forgotten third - renters or those looking to buy - the outlook remains grim. Once the mortgage belt's demand for lower interest rates was satisfied, concern about high prices for first-time buyers evaporated. House prices may have plateaued, but a new generation of young peoplestill cannot, and may never, afford to buy their own home.

Tim Williams, the co-author of a report on housing affordability, released this week by the McKell Institute, says the proportion of those aged 35 or below who cannot access home ownership - they live at home or rent - now stands at 66 per cent, compared with about one-third for the population at large.

Jessica goes on to write:

From an outsider's perspective, Williams says the property market is fundamentally, and uniquely, distorted. ''I remember my head reeling when I discovered how generous negative gearing was. There's nothing like it in the known world in terms of its generosity and in terms of its middle-class welfare.''

By adding to demand for housing - people's ability and willingness to pay for housing - negative gearing had inflated house prices for decades.

''I just think it's an astonishing gift to the wealthy and it has perverse effects on the housing market. You are squeezing young people out of home ownership while some people have two, three or four units - the incentives are just wrong.''

All this distortion has resulted in an astonishing fact: 22 per cent of people now own 55 per cent of the homes.

Williams is similarly shocked by the breakdown in the supply of new housing in the big cities, and Sydney, in particular. A complete lack of trust in the planning system in NSW has forged an unholy alliance between environmentalists and wealthy homeowners who gain from higher house prices by restricting the supply of new housing, he says.

Taken together, governments have for decades stimulated demand for housing, while failing to increase supply; a simple equation that has driven home prices up as a multiple of household incomes.

The solution?

Tax breaks that encourage excessive investment in housing,such as negative gearing and capital gains tax exemptions on the family home, need to be curbed or phased out.

Transaction taxes on property, that is stamp duties, which discourage people moving to more suitable accommodation, need to be abolished. Higher density development along transport lines and a focus on developing multi-centric cities should be encouraged.

The cost of infrastructure that will benefit future generations should not be passed on to new home builders through developer levies.