Australia’s rapidly increasing population is the main factor that has caused property prices to surge to unaffordable levels and not interest rates or tax breaks according to a new report.
A new whitepaper from LongView and PEXA, found that falling interest rates only had a small impact on property prices increases in the past 50 years. The paper also showed tax breaks such as negative gearing, and other demand-side policies like the first home owners grant only made a small difference to rising prices.
Australia’s rate of population growth through its immigration policies as well as the density of our urban cities played a major part in the housing crisis, the study found.
LongView Executive Chair Evan Thornley said the housing crisis has long been misunderstood.
Mr Thornley said, “If you really want to understand house prices, you need to understand what is different about Australia. Commentators typically focus on interest rates and tax policies. Both matter, but they don’t fully explain the growth we’ve seen.”
Australia has grown more than other countries
Around the world other countries have also lived through falling interest rates and similar supply constraints, however, Australian house prices have risen by much more than in these countries, according to the paper.
The paper found that Australia’s population was concentrated in the major cities as well, with 51 per cent of the population living in either Sydney, Melbourne or Brisbane, putting even more pressure on land supply.
Mr Thornley said Australia’s population dynamics mean our land appreciates faster and more consistently than almost anywhere else in the developed world.
Mr Thornley said, “What sets Australia apart is its consistently high population growth rates and urban concentration. Australian cities are unusual – they are few, they are large, and they all have dense CBDs and expansive suburbs, with not much in between.
“As a result, our analysis shows that the value of land alone accounts for most of the growth in property prices over the past 30 years in Australia” he said.
We need creative solutions
PEXA Chief Executive Officer Glenn King said the housing crisis is being examined in the wrong way: “If you reduce the analysis of our housing crisis to simple supply-and-demand arguments, you are going to get simple solutions – solutions that simply don’t work.
“What we have sought to do to is forensically analyse Australia’s unique demographic and urbanisation profile to help explain Australia’s upward trend in house prices over so many decades” Mr King said.
Mr King said that the rising cost of land is pushing people further out and hurting the economy: “Many first-home buyers, who are forced to buy far from the centre of cities, are denied the opportunities that may increase their quality of life, including access to the higher paying jobs that are in the central city and employment hubs.
“They aren’t reaping the economic benefits that living in a city should bring, benefits that generations of Australian city and suburb-dwellers have enjoyed.
“Put simply, our largest cities are now too big for this. This also has serious implications for the challenge of homelessness in Australia, which must be addressed” he said.
