If, like me, you’ve had the (mis)fortune of attending a few too many dinner parties in Sydney, then you’d be well-acquainted with Australians’ preoccupation with home ownership.
Older Australians are obsessed with accumulating investments. Younger Australians, meanwhile, are fixated on simply entering the property market in the first place.
It’s a profound source of intergenerational inequality in Australia – one that successive governments have found too politically inconvenient to address meaningfully. But one dimension of the problem remains under-examined: what it means for Australia’s influence in the world.
Writing in The Interpreter last month, Grant Wyeth discussed the rental side of the ledger for how the housing crisis affects Australia’s international standing. But when the “Australian dream” of every family owning their own home becomes increasingly difficult to realise, this also has international implications.
An old rentier class pitted against a frustrated youth demographic holds very little discursive power to attract migration or boost Australia’s credentials as an enviable economic model.
The data is striking. Measured in terms of multiples of median household income needed to buy a median-priced house, three of Australia’s capital cities – Sydney, Melbourne and Adelaide – are in the top ten least affordable cities globally. Brisbane and Perth are in top 20.
Paul Schroder, CEO of AustralianSuper – the nation’s largest retirement savings fund – diagnosed the economic and social consequences of Australia’s housing affordability problem speaking at last month’s AFR Business Summit. It’s worth quoting him at length:
“If you can’t find safe and secure housing, you cannot be optimistic, positive and energetic.
“In the [US], the total housing is $US50 trillion ($81 trillion) against an economy of $US29 trillion. In Australia, because we have ploughed so much into our houses ... it is worth $11 trillion versus GDP of $3 trillion.
“We have poured all this money into houses – all very well and terrific, we’ve painted the front fence and sold it on – which has deprived the economy of heaps and heaps of productive capital. We have all this money in our domestic houses, and we’re not backing businesses.
“We are not creating new things, and we are not driving productivity.”
This is a stark warning, only made more ominous by the fact it comes from such a senior figure in Australia’s financial establishment.
There’s also a lot to unpack from Schroder’s words about Australia’s place in the world.
The first point is about Australian identity. Much that makes Australia attractive and influential centres on the country’s high quality of life, its relatively low inequality, and a belief in the “fair go” – a ubiquitous aphorism implying that simply by working hard and following the rules, then a high degree of financial security is accessible to everyone, regardless of their background.
The way Australia has long defined this trajectory of financial security and familial success has been through the attainment of home ownership and, more recently, through the further accumulation of investment properties.
But as home ownership becomes increasingly inaccessible to young people and those without a wealthy family, a dissonance has festered between the national promise and expectation of home ownership and the reality of intergenerational inequality and near-permanent renter status for even middle-class Australians.
Unless fixed, this means that the stories Australians tell themselves and, by extension, the rest of the world about their country will increasingly ring hollow. An alternate narrative – an old rentier class pitted against a frustrated youth demographic – holds very little discursive power to attract migration or boost Australia’s credentials as an enviable economic model.
There are also more tangible financial implications for Australia’s international influence stemming from the housing crisis.
As Schroder indicates, property has become the default investment because it has been highly profitable and low risk for so long. Any government intent to restrain property prices has suffered ruthless political pushback.
Concentrating capital in property creates an opportunity cost for other more productive but riskier investments. Every dollar put into a Sydney property portfolio could otherwise be put into a new small business, invested into an Australian unicorn that expands overseas, or sent to foreign shores to support regional growth. In short, Australia’s massive pools of capital are being disproportionately invested in fixed assets that produce marginal value to the broader economy and do nothing to support the country’s international influence. This is at odds with the push for greater Australian investment in the Indo-Pacific as an element of economic statecraft.
The centrality of home ownership to Australians’ sense of self but, at the same time, its increasing inaccessibility also imposes a significant individual burden, especially on young people.
To afford a house and then service an inflated mortgage, Australians are less likely to take risks – whether moving jobs, starting their own business, moving abroad, or investing overseas. Instead, home ownership becomes a professional prison demanding the certainty and stability of stable, one-track careers. Again, this diminishes Australia’s innovativeness and productivity.
The cognitive opportunity cost is important too. As Schroder says, “If you can’t find safe and secure housing, you cannot be optimistic, positive and energetic.” When climbing the property ladder is so important but also so difficult, then people are more interested in their back fence than international horizons.
There’s little space to be ambitious about your country and its international standing when buying a house or affording the mortgage consumes much of your waking thought, even from a young age.
So, what’s the fix? The policy steps are actually very clear. But a new angle on the problem – encompassing the international implications of the housing crisis – could be a tipping point that galvanises all Australians to push their government to act.
