Is This The End of Farming?
For the best part of the past 30 years, people in Australia’s largest capital cities have been spending a large part of their waking hours talking about house prices.
If they’re one of the eleven million or so Australians who own at least one property (usually the one that they live in) – and especially if they’re one of the two million who now own two or more properties – then they’ll have been thrilled by the fact that property prices have risen by more than 400% over that interval. That’s four times as fast as consumer prices, and twice as fast as average weekly earnings have risen over the past 30 years.
Of course, if they haven’t been able to get their first foot on the property ownership ladder, they might have a different perspective. And there are more of them than there used to be. At the last census in 2016, the home ownership rate among people aged between 25 and 34 had fallen to its lowest level since the census of 1947; while the home ownership rate among people aged between 35 and 44 had fallen to just one percentage point above where it had been at the census of 1954. Almost certainly, when the results of the census which we completed last month are published some time next year, the home ownership rates among these age groups will have fallen even further. Even among 45 to 54 year-olds, the home ownership rate is likely to be down to where it was at the 1961 census.
There might even be some sympathy for the increased difficulties facing people in these age groups among their parents, especially those whose ‘downsizing’ or ‘sea-changing’ plans might have been frustrated by the fact that that their 20- or 30-something children are still living with them.
Until recently, people living outside the capital cities wouldn’t have been nearly as obsessed with talking about property prices. Over the 29 years to March last year, property prices in regional Australia had risen by ‘only’ 192% – more than the general price level, to be sure, but more or less in line with the increase in average earnings over that period.
But since then, property prices in regional Australia have been rising more rapidly than in the capital cities. Since March last year, they have risen by 23% across regional Australia as a whole, and by 27% in regional NSW, compared with 15% in the five largest capital cities. Again, this is good news if you already own one or more of those properties – but not so welcome if you don’t, but have been trying to do so.
Something similar has been happening with rents, too. Since March last year, rents have risen by more than 13% across regional Australia as a whole (and by just under 13% in regional NSW) – compared with just 5% in the five largest capital cities.
Covid-19 has had a lot to do with this. People have been fleeing lockdown afflicted capital cities in favour of places where the risk of catching Covid-19 appears to be much smaller. The greater acceptance by employers of ‘working from home’ – and the greater enthusiasm for it among employees – has made it more feasible, as well as attractive, to live in regional cities or towns from which a daily commute wouldn’t be feasible.
Attesting to this, almost 14,000 more people moved to regional areas of New South Wales in the twelve months to March this year, than left. A similar movement is evident in regional Victoria.
While this represents a ‘vote of confidence’ in regional areas, on the part of a growing number of people who’ve decided to move to them from the capital cities (or who have decided to stay in regional areas rather than move to capital cities), it also creates a problem, at least in the short term.
That’s because the increased demand for housing which it represents is outstripping the available supply of housing in most regional areas. Over the past decade, only 26% of all new residential buildings approved by local governments across New South Wales were in regional areas, even though regional areas accounted for about 35% of New South Wales’ total population. That share has picked up to just over 30% in the past two years, but there is a large backlog of unmet housing demand to be overcome.
Many of the factors contributing to the rapid inflation of property prices are of national origin – including record low interest rates, a renewed eagerness to lend on the part of banks, very large grants to first home buyers, and the assurance that the tax preferences enjoyed by property investors will continue no matter what the outcome of the next election. There’s nothing that regional communities can do about any of those things – apart, perhaps, from supporting local candidates at state and federal elections who are prepared to question some of those policies and agitate for change.
The one thing that regional communities which are experiencing rapid house price inflation – to the detriment of those wanting to buy a home, or having to rent, in them – can do is to facilitate increases in the supply of housing commensurate with the growth in demand for housing. Which means, among other things, being pro-active about creating the infrastructure required to make new housing developments ‘livable’ – and councils avoiding being unduly bureaucratic or obstructive in considering proposals for new residential buildings.
So, over to you, local councils and community groups.
Saul Eslake | Economist (saul-eslake.com)