On the eve of Victoria’s last lockdown, Peter Mares was feeling cautiously optimistic.
He was about to bid on behalf of a friend for a two-bedroom apartment in Princes Hill, in inner Melbourne.
Listed as an “impeccably maintained retro”, Mares describes it as the best-situated flat in an ugly block of dark brown brick walk-ups dating from late 1960s.
When it came to price, he tells ABC RN’s Saturday Extra, he had a buffer of $100,000 above the advised price range.
“I was authorised by my friend to bid up to $780,000, but I didn’t get to put my hand up because it sailed past that and went to $845,000,” he says.
A few streets away, another friend of his had just moved into a similar apartment to take advantage of falling rents. It was a lighter, better place than her previous house, and much cheaper.
“Theoretically rent is an indication of the value of housing,” Mares, a journalist who has researched the Australian housing market, says.
“The rental return should rise with the value of housing. But if you see prices going up in one place and rents going down in another, it seems quite odd.”
It may seem odd, but it’s consistent with data showing rents for Melbourne and Sydney apartments fell steeply last year and remain low due to a lack of international students and the effects of the pandemic.
“It’s a reminder that we don’t have one housing market, we have numerous housing markets, not just between cities but within cities,” Mares says.
Regional rentals disappearing
Then there are what Mares describes as the “boom conditions” in regional areas, particularly those close to the capital cities.
Chief economist at the Regional Australia Institute, Kim Houghton, researches the drivers of sale price growth, housing availability and rental shortages in regional Australia.
He says the recent boom is more complex than just an influx of people moving to regional Australia to take up new employment or work remotely.
“We’ve got investors, and owners and renters doing very different things in different parts of the country,” Dr Houghton says.
Housing markets in the more popular coastal regions saw some of the biggest sale price rises in 2020, and some of the sharpest tightening in rental markets, from good availability to very little availability.
Dr Houghton says this contrasts with large inland markets like Dubbo, in western NSW.
There, house prices increased by just over ten per cent in 2020, but the always-competitive rental market tightened even further to around 30 listings a week in late 2020.
“It’s been a long-standing challenge to get any investment in housing at all, to the extent that employers who are desperately trying to find workers are finding that workers aren’t coming because they can’t get decent accommodation,” Dr Houghton says.
He describes the lack of quality housing stock in Dubbo as a glass ceiling on regional economic activity.
Houghton identifies investor behaviour as the critical factor.
“The number of places available for rent in places like Coffs Harbour dropped so much through 2020 – from over 150 per week to well under 50 per week,” Dr Houghton says.
“We see the same pattern in places as diverse as Dubbo, Wodonga and Warrnambool.
“Why are investors taking their properties off the market? Are they selling up? Or converting to short term rental? Or are these places being bought as unoccupied second homes and taken off the rental market that way?”
Dr Houghton will lead research into rental shortages and housing supply in the regions over the next six months, which may lead to recommendations to ease the problem.
“Everybody wants regional growth. The best way is to have more people in higher skilled jobs, and we know that sheer availability and quality of housing is a problem,” Dr Houghton says.
Housing ‘an unproductive asset’
Sky high prices have become all too familiar to Hal Pawson, a Professor of Housing Research at University of New South Wales.
For decades he has analysed the plight of renters and potential buyers trying to raise a home deposit, and the growing wealth of homeowners.
Australia’s 30-year housing affordability decline has been among the worst in the developed world.
Professor Pawson says the problem is structural, because Australian governments have effectively subsidised housing investment through tax incentives for home owners.
Combined with low interest rates, this has changed the way many of us think about our homes – they are an asset, a place to grow capital and transfer wealth to the next generation.
“It is a worldwide trend, this ‘financialisation’ of housing, but it’s on steroids in Australia,” Professor Pawson says.
This has consequences for the economy.
“There’s a lot of drag on economy from the way our housing system operates,” Professor Pawson says.
“We’re talking about the relationship between incomes and the cost of housing — when you’re paying too much for housing, you don’t have as much left to spend on other forms of consumption, other goods and services that may be more may more employment generating than housing.
“The flip side of that is that we are over investing in our housing, which is essentially an unproductive asset.”
Peter Mares and Professor Pawson both worry about falling home ownership rates and growing wealth inequality in Australia, and agree on the need for better policies.
Professor Pawson says the responsibly for housing needs to be elevated to Federal Cabinet — the housing portfolio currently sits in the outer ministry.
He also suggests a national agency to better integrate national policy.
The issue is unlikely to go away.
“Since 2007, every election bar one, housing has been a major flash point,” he says.
“For the last decade we’ve been in an era where housing system is generating concern and controversy and that indicates that the problems have to be grappled with more effectively than they have been.”
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