I feel for the Gen Y and the Millennials, I really do. I know that I often mock them for all their bad traits and habits (my friends and readers excepted – if you read TDC, you’re clearly a good Y/M), but I definitely feel sorry for them as the dream of home ownership, for so long such an integral part of the Australian Dream, seems to be receding further and further way. I have been lucky enough to get onto the real estate roller-coaster before it really took off on its crazy journey early at the start of the century, as have most of my Gen X peers. It has been challenging sometimes, but generally manageable, though I know that adding a child or two or three into the equation can put a lot of stress on family finances. But a lot of younger people are facing the future where they even won’t get to discover that for themselves, for better or worse.
Why is housing so bloody expensive in Australia, and increasingly so, as opposed to many other part of the developed world? (though this far from an Australian-only problem, as Canada, for example, is experiencing similar housing pains.)
I first looked into this issue some twelve years ago, and I’m afraid the answers are still very much the same. Labor costs for builders and associated trades are very high in Australia. The supply of new land is tightly controlled by the state governments, making the available land much dearer. All levels of government take an indecent amount of money in taxes and levies at every stage of the process from the drawing board to housewarming. For all the hand-wringing about housing affordability, nothing much has been done about any of these three factors, which between them, I estimate, account for about 75 per cent of the price difference between an average house in Australia, which now costs 5-12 times the median household income and an average house in many other comparable economies, which costs 3-5 times that (three times the median household income has been traditionally considered to be the desired level of affordability).
Instead, the housing affordability debate seems to revolve around symbolic or marginal issues like first home owner grants or negative gearing. Or foreign, particularly Chinese buyers, who in reality are not in the same section of the market as first buyers. It is one of these issues that everyone is worried about but no one wants to do anything about.
Not to let the young people entirely off the hook, however, it’s hard to disagree with young developer Tim Gunter that unrealistic expectations are adding to the feeling of a crisis:
Developer Tim Gurner, 35, is worth nearly half a billion dollars but has delivered a brutal smackdown to some would-be first home buyers struggling to get a toehold in the market.
“When I was buying my first home, I wasn’t buying smashed avocado for 19 bucks and four coffees at $4 each,” he told 60 Minutes in a segment exploring Australia’s housing affordability crisis.
“You have to start to get realistic about your expectations. There is no question we are at a point now where the expectations of younger people are very, very high.
“They want to eat out every day, they want to travel to Europe every year. This generation is watching the Kardashians and thinking that’s normal. Thinking that owning a Bentley is normal, that owning a BMW is normal…
Mr Gurner said there was “no question” many young people today were blowing their money on a lifestyle, then whingeing about homes being too expensive.
“You’re not going to get a house in Camberwell for $700,000, you’re not going to get one in Alexandria in Sydney, you’re not going to get one in Newstead in Brisbane. I mean the market has changed.”
“I think until this generation realises that the people that own homes today worked very, very hard for it, saved every dollar, did everything they could to get up the property ladder (they won’t get ahead).
“You might have to buy an investment property first, you might have to share with mum and dad, you might have to buy with a friend, but you’ve got to get your foot in the door and you’ve got to slowly get up the ladder.”
Many have bristled at taking advice from a man worth half a billion, who got his head start in business thanks to a $39,000 gift from his grandfather (as the satirical “Betoota Advocate” had it, “How Not Buying Coffee Helped Me Make The Most Of The Trust Fund Grandpa Left Me”), but then it’s not about all of us being entrepreneurs and cracking the Richest 200; it’s about buying our first home.
And sadly, contrary what the experience of growing up during the longest period of economic expansion in Australia’s history might have taught people, in life you can’t have everything you want, at least not when and how you want it. I appreciate the inner city lifestyle as much as the next non-trendy person can, but it is simply not possible to combine that with the first home ownership. Life is about trade-offs, it’s always been – today the vibrant inner city is the magnet for our expectations; for our parents and grandparents it was the “good suburbs”: leafy, quiet and genteel. But if they are there now, they certainly haven’t started there with their first property. Our country may change – get more prosperous and offer more opportunities – but basic economics never do.
There is no denying that on top of everything else, the housing prices in Australia are inflated. Various experts have been telling us every few months that the housing bubble is about to pop and spray us all with crushed bricks and mortar and negative equity. So far, this bubble has been quite resilient, good economic times or bad. Even if the prices deflate at some point in the future, correcting for our over-exuberant enthusiasm, the structural problems that inflate our housing prices are likely to remain. Short of opening Australia’s borders to hordes of foreign brickies and sparkies in order to crash the building and construction wages, and short of our governments losing their mind and becoming less greedy and more far-sighted, I cannot see any short term good news for my young renting friends. But, by all means, eat less avocado because in longer term the greens in your bank account will do you more good than the greens in your stomach.