Housing policies are contributing to stagnating economic growth and putting at risk the economic stability of the nation.
Housing unaffordability is causing real economic damage that governments must treat more seriously. Put simply, rising mortgage debt poses risks for national economic stability, while current housing policies contribute to stagnating economic productivity and growth. Furthermore, when lower income workers have access to affordable housing near innovation hot spots and growth industries, the economy benefits.
For too long, policy makers have treated rising house prices as something to be celebrated as a signifier of political and economic success. Australia’s housing market has been regarded an efficient, smoothly operating system. By a margin of more than two to one the leading Australian economists and housing market experts who took place in our recent survey explicitly rejected this belief.
Productivity arguments now rival welfare arguments
There are obvious implications for a society’s wellbeing and welfare when buying a house is out of reach of most ordinary income earners, and when the less well-off are increasingly confined to insecure and unaffordable rented homes. But increasingly the productivity concerns around housing are at least rivalling welfare concerns.
New survey evidence indicates that Australia’s top economists and housing policy experts see a major disconnect between government policy on housing and the wider economic impacts of an increasingly underperforming housing system. Some 84% of respondents (and 73% of economists among them) agreed with the proposition that Australian governments pay insufficient heed to the effects of housing outcomes on productivity and economic growth.
These findings come from our survey of leading economists (47) and other housing experts from government, industry and academia (40). They indicate strong backing for the view that housing unaffordability is a policy challenge that governments must take more seriously, not just because of its welfare and wellbeing implications, but because of the economic damage that results. Large majorities of our expert respondents agreed that high rent burdens for low-income tenants impair economic productivity, and that rising mortgage debt poses risks for national economic stability.
Survey participant responses to stated propositions (% of respondents)
Source: Authors’ survey
Housing policy priorities
Current trends suggest that demand for housing at the lower end of the market has escalated dramatically. Public housing waiting lists have grown by 4% in the past year, while priority (high need) applications have spiked by 11% in 2020, and by 54% since 2016 (from 37,897 to 58,511). Since the 1990s, Australia’s social housing supply has effectively halved.
Concerns over the intensifying shortage in social housing were also strongly reflected in our experts survey. An overwhelming majority believed the Federal Government made a mistake in excluding social housing investment from the post-pandemic stimulus efforts. By a margin of eight to one, the experts disagreed with the proposition that omission of such measures from the 2020 budget was well-judged. Moreover, 57% overall (and even 51% of economists) strongly disagreed.
Challenging the Government’s singular focus on its HomeBuilder private housing subsidy scheme, two thirds of experts preferred housing sector stimulus directed at the non-market sector rather than market housing. Since only 17% disagreed, the margin favouring non-market targeting was almost four to one. Experts also generally backed the proposition that any such effort should be channelled through not-for-profit community housing providers rather than state/territory governments.
Survey participant responses to stated propositions (% of respondents)
Source: Authors’ survey
Housing policy, demographic change and economic productivity
The connections between adversity (and opportunity) and economic productivity are well documented. So, too, are the links between high incomes, asset wealth and economic stagnation. Some commentators have estimated that international migration has delivered between half and two thirds of Australia’s economic growth over the past 30 years. Other studies show that it takes 20-30 years for migrants to Australia to converge on Australian-born levels and patterns of consumption and income (the implication is that they work disproportionately hard during that period, to close the gap).
Of course, international migration has largely dried up during the pandemic, and is unlikely to return to previous levels for some years, if ever. The implications on population ageing and declining economic growth are problematic.
Unfortunately, due to current policies, our housing market contributes to stagnating economic productivity and growth, over and above the well-documented impacts on wealth inequality. Central to this is the way ever higher property values compound the gap between owners and others. The negative consequences of rising inequality for productivity and growth have been increasingly highlighted by international institutions such as the IMF and the OECD, by the Reserve Bank in Australia, by Thomas Piketty and, now, by a leading cohort of Australian economists and policy advisors.
In this, and in many other ways we have explored elsewhere, the economic damage that results from the (under)performance of our housing system must prompt Australian governments to re-think their outdated assumptions underlying the low priority they attach to housing challenges. The case for far-reaching policy and governance reforms in this sphere is not just an argument about enhancing community welfare, it is fundamental to enhancing national economic performance.
Consistent with the concerns of leading Australian experts and economists, current stimulus directed exclusively at the home-ownership sector has induced sharply rising house prices that will further exacerbate wealth and residual income inequalities and reward ownership rather than entrepreneurship and effort. Stimulating rental housing provision, especially for the working poor, could promote productivity, stability and fairness. Australia’s modern battlers deserve better designed housing-economic policies.
Survey respondents were drawn from academic, industry and government sectors. Most were trained economists, at least 15 of whom were members of The Conversation’s Economics Panel. Respondents were mainly employed in senior positions such as Professor, Partner or CEO. Further details are in our published report.
This article was co-authored by: Duncan Maclennan, Jinqiao Long, Hal Pawson, Bill Randolph, Fatemeh Aminpour and Chris Leishman
Hal Pawson is Professor Housing Research and Policy, and Associate Director of the City Futures Research Centre, UNSW.
Professor Bill Randolph is the former director of UNSW’s City Futures Research Centre
Comments
5 responses to “Rising house prices putting at risk the economic stability of the nation”
“Migration is unlikely to return to previous levels for some years.” Actually, the Budget ramps it back to 200K net, as early as 2023-24. Treasury Centre for Population is gunning even higher, 235K. Let’s face it, government doesn’t want affordable housing.
Too late! People are waking up and demand is actually falling. Japan had houses financed by 100 year mortgages at the peak in 1990. Those dwellings are now worth half what was ‘paid’. Zombie banks fund zombie corporations kept going through bribes into the power structure that prints money. This is just beginning in Australia, but is rampant in the USA and strong in EU.
Nationalizing the industries crucial to the future of Australia will be facilitated by destroyed values.
Are we ready to buy up what will soon be very cheap debt and capital of these industries? Let’s assemble a warchest!
Land and access to it are fundamental to human society – yet the word ‘land’ gets scant attention from most economists. This article – and maybe the supporting surveys – make no mention of the stuff. (Jason Hicklel’s recent book, ‘Less is More’ is, however, an outstanding exception)
The detriments to our society and economy of the high cost of accessing land in Australia was touched upon in my P&I article, ‘China’s Wicked Competitive Advantage’ last October (Tagged politics, economy). It really is time that the total effects of high priced land are having on our society, daily lives and international competitiveness are thoroughly researched by the economist’s fraternity – and the benefits of Land Value Taxation (no caps, no exceptions and open access valuations) to be viewed afresh; the work of Hal Pawson and Bill Randolph could be a great starting point.
That economic growth should not be the aim is well argued by Jason Hickel in his book above; the health and vibrancy of our society need to be the objective for ecological reasons. How come his frequent reference to land and enclosures came to be juxtaposed to this worthy objective – what’s the connection, eh?
The economics profession prostituted itself when in the 1880s they wrote LAND out of the “LAND/CAPITAL/LABOUR ” equation. Fearful of Henry George’s push for a single tax and bowing to pressure from the landed gentry, they covertly lumped Land in with Capital. Of course as we both know Henry George’s single tax was a tax on land. Henry George argued that what people built with their own labour and capital should be tax free. Today land is the biggest asset class and an economic rent tax on land could easily fund, if it was correctly collected, all of society’s needs! But no our culture prefers the “sport” of “Boom and Bust” so with every bust the rich get richer and more are destined to poverty and misery!
The reality is that the forces aligned to creating an asset bubble are far greater than those alert to the risks. And those who gain from the inevitable bust are many of the same who benefit from the bubble. According to Richard Werner the German Economist, Central Banks are key players as with every bust they gain more power.