Rising house prices in Australia are a ‘ticking economic bomb’

Australians are facing a “ticking economic Bomb” due to soaring house prices and the expectation that interest rate will rise in the future.

A University of New South Wales report found that Australia’s household debt nearly doubled over the past 30 years.

In 1990, the national household debt was 70% of Australia’s Gross Domestic Product (or GDP). This figure rose to 185% of GDP in 2020.

Housing: Taming the Elephant in the Economy – This report was called Housing.

“Australia’s approach to housing policy has increased wealth, income inequality, and caused significant economic instability.” Professor Duncan Maclennan, who was the main author of the report, said that this is a significant drag on productivity and a problem with Australia’s capital investments patterns.

“The recent rise in house prices is a worrying sign. Although the largest cities have seen an increase in house prices, it is spreading to regional Australia.

“This is partly due the pandemic-fueled work from home revolution, but also because many younger Australians can’t afford the lifestyle they want as homeowners in larger cities.

The 12 months ending April 2021 saw an increase in house prices in Australia of 10%. They are expected to rise between 10% and 14% over next year.

Australia’s current housing stock is worth $8.1 trillion when it is all valued together.

Professor Maclennan claimed market regulators ignore the real-world effects of property prices exploding on the daily movements Australians.

“Policymakers should pay more attention to economic fallouts caused by housing market distortions.” Professor Maclennan explained to us that although the Commonwealth Government’s policy actions can increase inflationary pressures the RBA has effectively absolved it of responsibility for raising house values.

“But people spend more on rent and mortgage, so they have fewer money for other goods.

“The RBA’s responsibilities should be expanded to include maintaining stable housing markets.”

Australia’s interest rates are at an historic low of 0.1% right now. In February 2020 – just prior to the true impact of the virus being known – Australia’s official cash rate was sitting at 0.75 per cent.

Professor Maclennan stated, “While the housing supply is slow,” that the states must do more for younger Australians to get into the market.

Professor Maclennan stated that “Short political timelines, cross-border and cross-sector blame games will not help younger and more fortunate Australians.”

“The problem is complex and large. A Royal Commission is required to investigate the best way of dispersing the time bomb and to create a better marketplace for all Australians.

Saul Eslake is an economist in housing. He stated that the soaring house prices are not just a response to COVID developments, but reflect the structure of Australia’s property market.

Media coverage is rightly concerned about the booming housing market, which is driving more young people off the market. This isn’t a temporary or cyclical problem. “It’s an issue structural that has been building for decades,” Mr Eslake stated.

“And it will not be solved with policy initiatives, that tinker around at the edges.

“It has been proven repeatedly that governments must abandon policies that primarily, or solely, inflate housing demand and pursue policies that increase the supply.