Working to buy your own home is a rite of passage in Australia, firmly rooted in a time when government delivered plentiful, affordable housing. Following the senseless poverty and destitution inflicted by price-gouging landlords during the Depression, we created a better, more equitable housing system after World War II.
Up until the mid-1970s, government took a hands-on approach to housing, constructing homes for people to buy or rent at low cost. Investors weren’t prioritised over the rights of people who needed shelter, and governments helped people buy with cheap loans. It was these settings that generalised the home-owning dream to over 70% of Australian households by the late 1960s.
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Australia’s housing a ‘closed shop’
But from the 1980s, Australia’s housing system was being transformed into a “closed shop”, working to expand the wealth of existing home owners and investors. If you owned a home, you had membership to Australia’s exclusive wealth-builders’ club.
Generous tax concessions flowed to home owners, who were encouraged to expand their financial position, spending on their own house and maybe a rental property. The capacity to stash 50% of the spoils from selling a house away from the tax man, paying capital gains tax on only the remaining 50%, combined with negative gearing, meant easy money without having to move yourself, and an annual cash-flow boost through interest deductibility at every income tax return.
After pumping up the insiders’ gains, government abandoned its role in new construction, handing the reins of housing supply to private interests. The majority of public dwellings, built by state housing authorities after the war, had already been sold off, mostly to the households occupying them, such that less than 4% of all homes are government-owned today.
After cutting supply, governments increased demand for housing. Tax concessions cultivated an investor class, but so did weakened lending regulations, which saw an explosion in new lending, as investors received almost the same loan rates as owner-occupiers.
House price growth was speeding ahead of employment incomes, and political pressure to respond to intergenerational and class inequality grew. Governments responded by ploughing billions into schemes to assist first-home buyers. Twenty billion dollars was spent in helping some young and low-income people into the market throughout the 2010s, but by 2021 this was little more than a bandaid over a bullet wound.
Poor housing leaves its mark on our mental health for years to come
False scarcity
Australia’s gold-plated housing system manufactures false scarcity. It excludes an ever-larger group of people, for whom housing becomes a rare commodity.
Contrary to rudimentary supply–demand theory, individuals holding ownership of the hottest product in human life have zero interest in expanding supply to meet demand for affordable, decent homes. They sit and wait for prices to increase, and people borrow more and more to keep up.
Worse still, Australia helps older, wealthy owners of housing to keep cashing in on the lack of affordable homes and rising prices. Economists Matt Grudnoff and Eliza Littleton found that almost three-quarters of the capital gains tax discount housing benefit goes to the top 10% of households by income, and more than three-quarters to people aged 50 and over.
People under 40 receive only 6% of capital gains tax discount benefits. It’s a government-bankrolled gravy train, and there are no wealth or inheritance taxes in sight.
Many young people are locked out of a housing system dominated by rich older people. The housing industry is at pains to hide this, selling the longstanding lie that the Australian landlords reducing their taxes are average-earning mums and dads, while in reality the beneficiaries of negative gearing are overwhelmingly wealthy.
More than half of the $4.3 billion annual benefit from negative-gearing tax cuts goes to the top 20% of households by income. Those aged between 40 and 60 capture more than 60% of the concessions.
Deposits of $120,000 ‘simply impossible’
Even if lucrative tax concessions were unpicked to support a more level playing field in our housing system, young people’s pain is multiplied in the jobs market.
The Productivity Commission found that real incomes for people aged 15–24 declined by an average of 1.6% every year over the decade 2008–18. Incomes fell slightly less for the Millennials aged 25–34, but still fell 0.7% each year. Over the same period, real incomes for the over 65s increased by 37% … more than one-third. The only cohort emphatically mobilising is the oldest.
Since young people lost a decade of income growth after the global financial crisis, lower incomes mean they can’t build savings at the same rate as older generations. The 20% deposit of $120,000 to buy a median capital city unit is simply impossible for many young people to reach, placing home ownership in fantasy territory.
Right now, thin savings blankets already mean severe distress when shit hits the fan. Without a secure income or roof over young people’s heads, economic shocks are more severe, overall health and wellbeing diminished, and the ability to grasp opportunities for other jobs or study compromised.
Widening intergenerational inequality centres around our housing system, with billions pumped into making houses more valuable. Many people who own those houses obtained them decades ago when prices were lower and you could rely on available jobs that paid enough to buy one. In the mid-1980s, the median earner forked out three times their annual income for a home, compared to the record-high 8.5 times their income in 2022.
But it’s not the old widower on your street who’s to blame: the bloke who bought his inner-city house in the 1970s for $15,000 and saw it rise to $1 million by retirement. Access to the basics of life is not the problem. Follow the big investor money.
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Permanent renting a new reality
While Australia encourages the wealthiest households to build housing assets, it forces young and low-income households into an increasingly pressured private rental market. Over 60% of people aged under 30 are renting, with this age group experiencing the sharpest increase in renting arrangements than any other age group since 1996.
Low welfare payments and casual jobs are no match for rising rents. In fact, based on current rates for renting one bedroom in a two-bedroom unit, an average 18-year-old working in hospitality or retail, or receiving Youth Allowance, meets the definition of housing stress in every capital city in the country.
Australia’s private rental system was designed to be a tenancy of transition, not a permanent encounter. But renting permanently is the reality for a growing number of low-income people, including youth, older women, those with disabilities, and Aboriginal and Torres Strait Islander people.
Governments have failed to catch up with this seismic shift in rental dependency. Without regulation of rental conditions, human dignity and security of tenure are railroaded by landlords, who routinely price gouge, abuse tenants, and offer dilapidated, inadequate, poor-quality housing.
After momentarily cooling with reduced demand in the pandemic lull, and various short-term measures introduced by state governments to relieve renters – including moratoriums on evictions and prohibitions on rent increases – rental prices have since surged. In the 12 months to September 2022, rental prices grew nationally by 15%, and vacancy rates fell to their lowest level since 2006 at less than 1%, with ongoing floods in New South Wales and Victoria placing greater strain on already-slim housing stocks in regional areas.
The shortened supply of suitable rental properties in many pockets of the country facilitates invasive practices by real estate agents too, who routinely encourage rent-bidding and payment of several months’ rent in advance, and demand financial and personal records from tenants. All for the privilege of paying off someone else’s mortgage!
Australian landlords demand a return on their investment as a matter of entitlement. As a class, they pocket billions in housing tax concessions, contribute to rising prices, and then demand their poorer tenants keep up with rents.
Retrofitting a rental system designed to build the wealth of investors into one that meets human need costs us a pretty penny. The sneaky, indirect subsidy not often acknowledged is the almost $5 billion spent annually in Commonwealth Rent Assistance – a supplement paid by the federal government to people on meagre social security payments trying to keep a roof over their heads – which underpins the private rental system.
Australians idolise self-employment as an escape from the horrors of bad bosses, and it’s not hard to see the appeal of owner occupation to escape landlords. People would rather scrounge and submit to a lifetime of bank debt just to escape the indignity of individuals unfairly emboldened by our policies to determine the life course of others.
Why, after all, should young people be fixed in a cycle of helping secure wealth for older generations?
The housing wealth gap between older and younger Australians has widened alarmingly in the past 30 years. Here’s why
Inequality within and between generations
In a housing system generating inequality both within and between generations, all young people face rising hurdles to home ownership compared to earlier post-war generations, but those with the lowest incomes suffer the most.
Parental lending is reported with humour in our media – the Bank of Mum and Dad is now the ninth biggest mortgage lender – but this creeping return to feudal social relations is a shocking development in a nation that defined itself against the rigid class hierarchies of Britain.
Australia’s investor-dominated housing system has walked the nation to the cliff’s edge of our egalitarian history; whereas employment income was once sufficient to secure housing and a good life, working any job today is no longer enough; the wealth you’re born into increasingly determines your life chances.
While young people have nothing to gain from a housing system built on ever-rising prices and inherited wealth, it doesn’t mean they’ll revolt. I’ve seen an uncomfortable trend among many middle-class young people who’ve resigned themselves to insecure, unfulfilling jobs, and a sense they won’t transcend their parents’ financial or professional success.
Australia’s housing system is politically conservatising. The vast majority of wealth held by middle-class and upper-middle-class households is concentrated in land holdings, between 56 and 88% of their net wealth. That’s a lot of eggs in the status quo basket.
Disenfranchised young people see that economic opportunity may go backwards in their lifetime, but at least they’ll inherit the house when Mum and/or Dad kick the bucket. But with the average age of people inheriting wealth in the 50s, it’s an awfully long time to wait.
Not everyone wins from the bank of mum and dad
Hoping for a crash
What’s the effect of all this? Australia’s jobs, housing and tax policies are writing the futures of people who have no chance of contributing to the story. It’s why 53% of young Australians expect to be financially worse off than their parents.
Deloitte’s 2022 Global 2022 Gen Z and Millennial Survey shows the biggest issue plaguing Millennials and Gen Z is the rising cost of living. Almost half of young people globally live from one pay day to the next.
On top of the sense that the rising cost of living will price them out of having a family, many fear delivering their future progeny into a climate apocalypse. Existential doom and mass disempowerment are taking a grip on young people’s thinking. They’re trying to make the right choices against a backdrop of collapsed collective movements and government inaction against an energised global fossil fuel sector.
With economic exclusion carrying lifelong consequences for employment, health and welfare, it’s unsurprising that many young people have given up. One in ten people aged 15–24 is not engaged in any education, employment or training. Just under one-third (29%) report having poor or very poor mental health.
Severe psychological distress has grown since 2017, with youth from low socio-economic and regional backgrounds experiencing the highest rates of mental illness. Young people feel the terrible weight of a society that is failing them.
Without hope of buying homes, young people engage in their favourite big crisis pastime: welcoming a market crash. With the pandemic came renewed faith in total economic carnage as the route to owner occupation – a hope that prices would crash and they’d finally be able to afford a home. These ideas are inspired by the collapse of the US financial system after the global financial crisis, though such an event is entirely ill-fit for Australia’s housing system.
As home prices soar, we have an inquiry almost designed not to tell us why
Why a housing crash won’t happen in Australia
One of my favourite economists, Hyman Minsky, wrote about how asset price inflation emerges in modern financial markets, and what governments do when it goes belly up. When prices rise unsustainably, get away from their underlying value and enter free-fall, government swoops in as the lender-of-last-resort, socialising financial losses before debt deflation infects the rest of the economy.
Exactly whose losses government socialises is the real question – as seen with the trillion-dollar bailout for US corporations during the GFC while thousands of working-class Americans lost their homes.
Hoping highly leveraged poorer households lose their homes to bring down prices is no pathway to housing security for Australian youth. Morality aside, any generalised housing market crash in Australia is highly unlikely because astronomical levels of public money are pumped into the system already, including $14 billion every year in tax concessions and more in subsidies.
But then, as Minsky reminds us, government will do everything it can to prevent a housing system crash because housing is so heavily intertwined with the stability of Australia’s banking system, which is, in turn, highly concentrated in mortgage lending.
The big four banks hold $1.9 trillion in mortgage loans, which comprises 65% of all their liabilities. Unlike the United States, Australia’s problem isn’t securitisation and unregulated “shadow banking”; it’s big, national banks that have monopolised credit provision and rake in easy profits by tightening the screws on workers’ mortgages and making houses more expensive.
Even if government unwound unsustainable tax concessions and built more houses, house prices might decline moderately, but never bottom out. So, waiting for housing prices to enter free fall is another pipedream.
But with 69% of young people now believing government has a responsibility to provide access to affordable housing for everyone, the scene is set for new and creative solutions to Australia’s housing crisis – the likes and scale of which we’ve never seen – including mass urban social and public housing projects, and shared-equity and cooperative housing schemes. With the advancement of a new national affordable housing agenda, “generation rent” may finally taste secure independence.
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Our housing has been in ‘dark territory’ before
After the war, strong unions made sure government kept up with people’s expectations of a Fair Go. It made home ownership a reality for the average worker. But besides this brief period during the post-war reconstruction period when state governments focused on building public housing, Australia’s housing system has been otherwise dominated by private provision.
Frederick Oswald
In fact, giving investors the reins in the housing system has plunged us into dark territory before. The working class and poor were subjected to untrammelled landlord power in the rental market during the Depression – the only tenure available to them. People were packed into overcrowded, unsanitary homes, without regulations or controls against the exorbitant rents that consumed their paltry incomes.
During the Depression, rental housing became emblematic of a society failing to provide basic economic security to all people, to the benefit of a minority of property owners. Sound familiar?
Shanty towns and eviction riots: the radical history of Australia’s property market
What can we do to fix Australia’s housing?
Let’s not make the same mistake twice. Homes aren’t commodities. We can transcend our past solutions to the same problem of private housing provision that we faced then. In the immediate post-war years, we expanded owner occupation to workers as the housing arrangements of civility and dignity.
Today, we must resolve the housing crisis by dramatically expanding public and social housing – dwellings constructed and leased at low cost by both government and community housing providers.
Australian workers once aspired to a humble home to call their own. But the era of public-bankrolled housing riches is a shameful turn in our history. It’s time to stop subsidising property investors. Winding back multi-billion-dollar housing tax concessions will help us fund an upgrade to the Fair Go’s remit for public services, with the right to secure housing too.
Building quality public and social housing alternatives to owning a home isn’t just about fixing a crisis in which over 500,000 people languish waiting for social housing. It’s also about shifting the focus of our nation’s culture and identity.
From the late 1990s, Australians were told to keep their head down, work hard, suffer honourably like the diggers, and find solace in the rising value of their homes. This was John Howard’s ideological project, which sought to dismantle working-class identity and replace it with “Aussie battlers”.
But defining people’s value based on economic conditions over which they have no control – like interest rates – has resulted in many workers becoming passive and without agency in the areas in which they can build power, like at work.
While the poorest suffer in material deprivation, Australia’s housing system, running on a “get in, cash out” mantra, has fostered a toxic political constituency, and a deprived national psyche. Are we really a nation of one-dimensional wealth-builders?
If we could avoid locking people into the mortgage rat-race, huge amounts of time would be freed to explore more fulfilling jobs – and lives. This is already the reality in Nordic countries, where there is a wide repertoire of pro-social housing models like housing cooperatives, which amount to 22% of the total housing stock in Sweden, and 40% of all housing stock in Norway’s capital, Oslo.
A national public housing construction program could build hundreds of thousands of units, with local materials and labour where possible, co-funded and delivered in partnership with state governments. They could be well-planned, high-quality, beautiful units, affordable and accessible to all.
We could also purchase existing privately owned dwellings, and renovate and repurpose them. Establishing a network of public housing community bodies could ensure new units were designed well, with residents helping manage the day-to-day running of their homes – just like they do in Sweden’s housing cooperatives – rather than the present highly bureaucratic, paternalistic system.
There are others for whom owner occupation will remain important. Indeed, the majority of young Australians say owning a home is still a key goal. Government could extend concessional loans, or even consider creating a public bank to extend cheap credit, and change regulations to slow commercial investor lending.
It’s a mighty challenge for Australia. We’re weaning ourselves off a drug. But normalising public and social housing, coupled with the campaign for good jobs and dignified, secure incomes, would help redirect the enormous economic and cultural value Australians place in the individual ownership of land and property.
This priority shift is one of the most critical updates we can make to the legacy of the Fair Go, built on unceded Aboriginal lands, and our nation would be the richer for it.
This is an edited extract from Gen F’d: How Young Australians Can Reclaim Their Uncertain Futures? by Alison Pennington, published by Hardie Grant Books on 8 March 2023. Available in stores nationally.
