Record sales and rental problems: Australia reveals the duality of its property market

Opinion: Scott Farquhar, the tech billionaire, broke Australian property records by paying A$73 million for Elaine, a crumbling 160-year-old Sydney Harbor mansion long the stronghold of the Fairfax publishing family.

He never moved in, leaving the seven-bedroom Victorian house empty for nearly seven years.
until last month when the 44-year-old sold it for $130 million (NZ$144 million). That’s almost $60 million if you don’t do anything special.

Days later, a Melbourne father paid $680,000 for a cottage for his school-aged daughter, fearing she wouldn’t be able to afford the house for years to come.

Both illustrate the extremes of the Australian housing market; investors see buying homes as a surefire path to wealth, while others are concerned that home ownership is becoming unaffordable.

The latter is real; These days, the average house price in Australia, at around $802,000, is about eight times the average annual salary of an Australian. For young people trying to buy a home today, it’s little comfort to know that when their parents bought their first home, the price was probably only about 3.5 times their income.

In Sydney things are much worse. The average house price is over S$1.6 million, which is about 16 times the average annual income.

The decline in housing affordability is a recurring theme in my home in Sydney, where we lived while our eldest daughter wrote her honors thesis in economics: How important is the Bank of Mom and Dad? (Answer: more important than ever.)

Although she’s reluctant, we hope she and her sister will join the 60% of first home buyers in Australia who are helped by their parents. If they agree, it will widen the class divide: those who get their own home, as parental wealth is inherited, and those who do not have such access and face a lifetime lease.

The reasons for rapidly rising property prices are many, but common to Australia and New Zealand are the growing influx of migrants and the failure of well-intentioned governments to achieve ambitious housing targets.

And, at least in Australia, investors are encouraged to invest in property because of generous tax incentives – especially negative gearing, which allows those taking out loans to buy homes to use their losses to reduce taxes. Thus, investor demand is driving up the prices of houses, which are now considered a source of great wealth.

It’s no surprise that 20% of all Australian taxpayers own investment property. Meanwhile, on weekends, the lines of young and not-so-young people to rent – many of them resigned to the fact that they will never own a home – grow longer.

Those who argue that tax breaks expand the rental market need to explain why a chronic housing shortage persists.

Alan Kohler, the Australian Broadcasting Corporation’s charmingly disheveled and genial financial commentator and multimillion-dollar media entrepreneur, last month released a tense and illuminating book about Australia’s housing mess, entitled The Great Divide.

In one pointed paragraph, he expressed what most people know but don’t say: Everyone in the game – homeowners, banks, developers and politicians – wants home prices to rise for their own reasons. Tenants have no chance.

The reckoning is coming. The Australian Greens, already with 15 MPs in the national parliament, are riding a wave of support for sweeping changes that include a rent freeze, national landlord oversight, mass public housing construction and an end to tax breaks for investors.

Surveys show the country’s eight million renters are listening. With Labor Prime Minister Anthony Albanese’s government likely to be forced into a minority government after next year’s election, the house of cards could well end up in the hands of the Greens.