The housing crisis is continuing to worsen across Australia, with house prices out of reach of many young workers, rent increasing, and governments refusing to invest in public housing.
The Demographia International Housing Affordability Survey in January found that, in Melbourne, it would cost 10 times the average annual income to buy a house. In Sydney it is more than 12 times. Of 92 cities across 9 countries, the only city with a worse score than Sydney was Hong Kong, where the average price is 19 times annual income and tens of thousands of people live in 6 by 2.5 foot “coffin cubicles.”
The authors of the Demographia study blame the overpricing on state governments keeping land locked up, claiming that unreasonable prices are caused by there not being enough property available. But the truth is that house prices are never automatically set at reasonable levels by the market.
Even in the middle of this bubble, vacancy rates in investor-owned properties have reached as high as 20%. In 2015, Prosper Australia found that some of the most ‘desirable’ inner north areas in Melbourne had the highest vacancy rates. Homes are left empty while thousands languish on public housing waiting lists.
Housing is seen as a profit-making investment, not a right or a necessity. Speculators buy up property, betting on the price going up so that they can make money selling it later. This accelerated in the 1980s, when Labor carried out financial deregulation, which gave banks access to cheap international credit. The banks sold this credit to us as mortgages, and inflated mortgages have been one of the main ways in which they make multi-billion dollar profits. This is why they have refused to admit there is a bubble for so long – as much as 60% of their loans are residential mortgages.
Speculators can get a discount on capital gains tax – the tax charged on the profit made from investments, and along with negative gearing this policy has made housing speculation more appealing. Some estimates put the cost of these measures to the government as high as $11 billion a year.
For ordinary people, the cost of living continually increases, while wages are stagnant and many are forced into insecure and low-paid jobs. The current crop of union leaders have failed to take action on this. A massive social crisis is waiting to unfold.
If the housing bubble bursts, it would massively increase the hardship felt by working people. Household debt in Australia is nearly double household income. Many will be left holding debts they can never repay. If this happens, one or more of the major banks could go under, and this would cause further crisis. Unlike in 2008, the government does not have the same capacity to bail them out.
The Australian economy is also vulnerable to shocks in the global economy. The banks are reliant on international credit to finance loans. A number of overseas triggers could bring them to the brink. But Australia is not just at risk from a crisis overseas – a crisis here could also spread outwards.
The CANNS countries – Canada, Australia, New Zealand, Norway and Sweden – came through the 2008 global crash without the same damage suffered in the US and Europe. They achieved this partly by accumulating enormous amounts of debt, building up large banking sectors and housing bubbles. London-based Absolute Strategy Research is now warning that these countries pose a risk to the global financial system.
The only way out of the housing crisis is to reject the capitalist housing market. There is no rational excuse for properties costing more than the bricks, mortar and labour needed to build and maintain them.
There is no reason we cannot build high quality public housing, with input from residents into how it is to be designed. Rents must be limited to what people can afford. This means introducing rent caps and rent control, and outlawing the rent bidding encouraged by landlords. Housing speculation should be ended.
One aspect of the bubble is that financial advisors have steered ordinary people toward property investment, though they are often still paying off the mortgage on their first home. These people should be reimbursed on the basis of proven need, and inflated mortgage debts forgiven.
To do this we would need to nationalise the major banks and developers, and turn them toward serving the needs of working people instead of capitalist speculators. We need a clear, socialist policy. Capitalism is the cause of the housing crisis, and capitalists always shift the burden of its failures onto working people. It is time to flip this around.
Editorial comment from the March 2018 issue of The Socialist