The white paper collated by academics from the University of New South Wales (UNSW), University of South Australia and University of Glasgow has urged for institutional reform to stabilise the housing market.
Changes suggested by the paper include a dedicated royal commission, national housing strategy and agency, and permanent housing committee in the national cabinet.
The report’s lead author, Professor Duncan Maclennan, said the review confirms that Australia’s housing system is dysfunctional at all levels and is an inherent risk to the economy, calling for an immediate overhaul.
“Australia’s approach to housing policy has fueled income and wealth inequality and created significant economic instability. This is a huge drag on productivity and warps Australia’s capital investment patterns,” Mr Maclennan said.
“The scale and complexity of the problem demands that a royal commission be established to investigate how to defuse the time bomb and create a more effective and equitable market for all Australians.”
Economists warn high prices, mortgage debts raise instability risks
The report was based on a survey of 87 economists and experts, the majority (67 per cent) of whom shared the concern that the absence of a coherent housing market strategy for Australia now constitutes a significant barrier to an effective post-pandemic recovery.
Nearly three-quarters (73 per cent) believed that high mortgage debts and burdens as a result of high house prices raise instability risks for the economy.
The same proportion (73 per cent) agreed that metropolitan housing market distortions such as sub-optimal labour market matching due to high prices and rents are impairing economic growth and productivity.
National household debt has more than doubled in the last three decades, according to the white paper, from 70 per cent in 1990 to almost 185 per cent in 2020.
House prices have also risen by 10 per cent in the year to April and are forecast to rise between 10 per cent and 14 per cent in the coming year.
ABS data released on Tuesday (16 June) showed the total value of residential dwellings rose by almost $450 billion in the March quarter to reach $8.3 trillion.
‘Policymakers must pay greater attention’
Mr Maclennan noted that rampant price growth has spread out from capital cities to regional Australia, driven by the wave of working remotely and demand from younger consumers who are priced out of the cities.
The overwhelming majority (85 per cent) of economists surveyed contended that policymakers need to pay greater attention to the economic productivity effects of housing market outcomes, such as costs, tenure, quality and proximity to work.
The report has also called for the RBA formal accountabilities to include housing market stability to help maintain a more rational housing market.
“Policymakers must pay greater attention to the economic fallout created by housing market distortions,” Mr Maclennan said.
“The Commonwealth government’s policy actions are boosting inflationary pressures, and the RBA has effectively washed its hands of responsibility for house prices, arguing higher prices are good for the economy.
“But when people are paying more and more for rent and to service their mortgages, they have less and less to spend on other goods and services.”
The vast majority (91 per cent) of survey respondents agreed that high housing costs reduce consumption of non-housing goods.
Mr Maclennan also argued the federal government has been “wrong to assume that state and local planning is the cause” of sluggish housing supply. “Shortages of infrastructure, skilled labour and raw materials all matter too. States do need to audit housing supply chains and bring all their powers to bear to make them faster and more flexible,” he said.
“Short political time horizons and cross-sector blame games will not help younger and poorer Australians.”
The report has also recommended switching housing stimulus efforts to support the social rental sector, arguing it would have potentially lesser inflationary consequences in the immediate term.
[Related: Home buying intentions on the rise: CBA]
Find out more about the economic trends and factors impacting the property market at the Better Business Summit 2021. Places are limited, so make sure you secure your place at the five-state event asap!
Sarah Simpkins is the news editor across Mortgage Business and The Adviser.
Previously, she reported on banking, financial services and wealth for InvestorDaily and ifa.