Powered by MOMENTUM MEDIA
subscribe to our newsletter

House price rise jeopardises economy: UNSW

A report has called for a royal commission and the Reserve Bank to address soaring house prices, warning that the Australian property market is threatening the nation’s economic future.

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.

Advertisement
Advertisement

“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.

PROMOTED CONTENT


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!

House price rise jeopardises economy: UNSW
House price rise jeopardises economy: UNSW
mortgagebusiness

Are you a new-to-industry broker in the process of growing your business? Then there’s some great news: The Adviser’s New Broker Academy is back in 2021 and will provide you with essential insights into cutting-edge tools, strategies and processes to fast-track to success. Don’t miss your chance to attend. To secure your FREE place, visit newbroker.com.au now!

Sarah Simpkins

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.

You can contact her on This email address is being protected from spambots. You need JavaScript enabled to view it..

Latest News

Australian buy now, pay later giant Afterpay is set to be acquired by a San Francisco payments fintech, in a deal worth approximately $39 bi...

There has been sustained robust growth in home lending driven by strong owner-occupied lending and faster growth in investor housing, accord...

The prudential regulator has launched a week-long consultation on its regulatory approach for banks offering temporary financial assistance ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

How long do you think it should take to discharge a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.