Australia’s most trusted financial journalist, Alan Kohler, gives his take on Australia’s housing crisis, accompanied by solutions, in The Great Divide: Australia’s Housing Mess and How to Fix It. Photo: Supplied.
Buying a house is one of the best investments any individual can make, but while a house is a physical structure, a home is where we build our lives, filled with memories and aspirations. We all dream of becoming homeowners!
Australia’s most trusted financial journalist, Alan Kohler, methodically analyses the economic and historical origins of housing affordability in The Great Divide: Australia’s Housing Mess and How to Fix It, which is an updated and expanded edition of the bestselling Quarterly Essay.
Rising house prices have become a significant problem, reshaping Australian society. As Kohler tells it, things went seriously wrong at the start of the 21st century, when there was a huge and permanent rise in the price of housing.
One of the great mysteries of Australian life is that a land of sweeping plains, with one of the lowest population densities on the planet, has a shortage of land for houses. As a result, Sydney is the second most expensive place to buy a house on Earth, after Hong Kong.
The escalation in house prices is a pain that has altered Australian society; it has increased inequality and profoundly changed the relationship between generations – between those who have a house and those who don’t. It has caused a rental crisis, a dearth of public housing and a mortgage crunch.
Kohler says all young people today are paying more than twice the multiple of their income for a house than their parents – and their grandparents – did, and it’s only vaguely possible because both partners work to pay it off. Graphs show the problem ”started with the new millennium”.
“The shift that began around 2000 in the relationship between the cost of housing and both average incomes and the rest of the economy has altered everything about the way Australia operates and Australians live,” Kohler explains.
“Six per cent compound annual growth in the value of houses over the past 23 years versus three per cent annual growth in average incomes has meant that household debt has had to increase from half to twice average disposable income, and from 40 per cent of GDP to 120 per cent. This is the most important single fact about the Australian economy. The large amount of housing debt Australians carry means that interest rates have a much greater impact on their lives, and this in turn affects inflation, wages, employment and economic growth.”
For many people, housing affordability is a terrible burden.
“The houses we live in, the places we call home and bring up our families in, have been turned into speculative investment assets by the 50 years of government policy failure, financialisation and greed that resulted in 25 years of exploding house prices.”
This modernised edition of The Great Divide adds material on homelessness, how much house prices in each city need to come down to be affordable, and lessons from overseas. This concise, lucid, visionary and future-focused book tells the story of how we got into this mess – and how we might get out of it.
Kohler expands on what he says are three main things that pushed up demand for housing after 2000.
“A sharp lift in immigration that increased the number of people needing a place to live; capital gains tax breaks and negative gearing, which represent a $96 billion per year subsidy for buying houses; and federal first home buyer grants, which represent a $1.5 billion direct addition to house prices each year.
“If governments caused the problem, can governments fix it? Theoretically, yes …”
It was former Reserve Bank governor Philip Lowe who had highlighted some pressing concerns in his farewell speech in September 2023.
“The reason that Australia has some of the highest housing prices in the world … is the outcome of the choices we have made as a society: choices about where we live; how we design our cities, and zone and regulate urban land; how we invest in and design transport systems; and how we tax land and housing investment. In each of these areas, our society and politicians have made choices that lead to high urban land and housing costs. It is by tackling these issues that we can address the high cost of housing in Australia, which I view as a serious economic and social problem.”
As Kohler explains in the final chapter, titled ‘’Solutions’’: “… actually doing something about housing affordability would require courage, Minister.”
The Great Divide: Australia’s Housing Mess and How to Fix It, by Alan Kohler, Black Inc, $27.99
