Running a Fever: How Australia’s overheated property market has widened the class divide

National discourse slamming young people for their spending habits as a fixture of home-owning first gained mass traction five years ago. How has the property market changed with the added pressures of COVID-19? (Image source: Tierra Mallorca on Unsplash)

By Jessica Franze | @franze_jessica

In December 2016, demographer Bernard Salt penned a column for The Australian. His piece went viral, setting off a national debate on the reasons why millennials can’t afford a home.

“I have seen young people order smashed avocado with crumbled feta on five-grain toasted bread at $22 a pop and more… How can young people afford to eat like this?” Salt asked.

For young Aussies across Sydney and Melbourne, talk of avocado on toast and housing affordability cut deep even then, much like the widening gap between wages and house prices.

Currently, a person working in Melbourne typically earns $106,000 per year, while the average yearly salary in Sydney is $108,000. These figures do not capture insecure work arrangements – such as casual work, part-time jobs and fixed-term contract employment – that contribute to increasing levels of unemployment and underemployment for young workers.

Measures to slow the spread of COVID-19 – including social-distancing, lockdowns and domestic and international border restrictions – have had wide-ranging effects on the housing and labour markets. The economic impact has caused property prices to surge, with some buyers scrambling to take advantage of record low interest rates and others altogether priced out of the market.

Since the start of 2021, house values across Melbourne increased by 10.7 per cent, with the median house price now sitting at $689,099. In Sydney, the median house price has risen $100,000 since the start of the year, with house values up by 4.3 per cent according to CoreLogic data, and the new median being $1,112,671.

Housing expert at the University of Melbourne, Dr Kate Raynor, said that while there may have been a “sprinkling of truth” in Salt’s comment, the impacts of COVID-19 are just some making it harder for millennials to crack the property market.

“Any way you can bring down your expenditure you increase your capacity to save. However, the context in which baby boomers bought their homes is not the same context,” Dr Raynor said.

“If you were buying a home in the 1980s, the average house price was around three and a half times the average wage. When you’re looking at Sydney and Melbourne now, it’s more like nine times, eleven times, twelve times the median wage.”

“What is happening now [with COVID-19] is the exacerbation of a long-term trend that is really creating that divide between the haves and have-nots,” she said.

Government support packages to mitigate the impacts of COVID-19 – such as JobKeeper Payment support for businesses and the Homebuilder Grant, mortgage pauses and record low interest rates – have seen the nation’s economy bounce back sooner than anticipated.

Now, even in more affordable cities like Adelaide, the impacts of the pandemic are driving house prices up. In December, the South Australian Real Estate Institute reported the median house price had reached a new record high, peaking at $510,000, with many properties exceeding expectations at sale.

The increased competition has entrenched not only the financial disparity between millennials and their parents, but also increased inequity among millennials themselves.

“Even for young people on a relatively high wage these days, if you don’t have parents who’ll go guarantor on your loan or support any part of your deposit, or anything like that, then you’re going to have a far, far harder run at being able to purchase a home,” Dr Raynor said.

Travel restrictions, lockdowns and shop closures have had some positive unintended effects: people saved more money and paid down debts.

“If they didn’t lose their job – I’m talking about a privileged proportion – they are in a better position to buy a home now than what they would have been,” Dr Raynor said.

With supply down and demand up, property value increases are adding to a sense of FOMO – or, Fear Of Missing Out – among buyers.

“I am worried about the proportion of loans that are being taken up with really low deposits, and incredibly low interest rates, which will not be like this forever,” Dr Raynor said.

“I think a lot of first-home buyers will come out of this really well and a lot of them will end up very stressed out with the potential for defaulting on mortgages or just not seeing past price growth for a very long time.”

While first-home buyers are buying property at higher rates than before, existing homeowners stand to reap even greater benefits. The lower interest rates and value increases are making it easier for existing homeowners to buy and sell.

Dr Raynor said the trend towards property wealth stems back to the late 80s, early 90s, when government policy changed to encourage people to view housing as an investment product.

“I think, for the longest time, Australia has been a nation of homeowners and we voted for wanting to secure and attain our wealth through home ownership,” she said.

So, if you’re not already a homeowner or the child of a wealthy homeowner, where does that leave you? Stuck in the renting quagmire.

The impacts of COVID-19 on the property market have seen existing homeowners choose to either sell up or move into their rental properties, creating a shortage of affordable rental accommodation.

Provisional internal migration data from the Australian Bureau of Statistics shows the nation’s capital cities had a net loss of 11,200 people during July, August and September last year. The city exodus has left long-term renters in some regional areas homeless or at risk of homelessness.

“I think, at the moment, the way that the government makes people happy is through home builder policies or changes to stamp duty concessions or changes to first-home buyer grants… And that’s what gets votes,” Dr Raynor said.

“I would love to see the transition where people start voting based on renter rights or programs that slow down the increase in house prices or build social and affordable rental housing.”

“I don’t think we’re at that point yet. I think we’re still distracted by other things.”

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