The Sydney property market has stubbornly resisted regulatory cooling measures.
I now really appreciate what the boomerang generation means. My experience with the great Sydney and Melbourne house price escalation has become deeply personal. I don’t know whether to be relieved or alarmed about so conforming to stereotype.
But it does demonstrate why the Turnbull government has a big problem and so few obvious answers in appealing to voters feeling increasingly financially squeezed.
Not that Labor has too many reliable answers either – but that’s part of the advantage of being in opposition in an era of discontent. Particularly when a younger generation is deciding the deck is financially stacked, the very promise of change to combat “inequality” sounds more powerful.
Alert readers will recall that I recently joined the latest baby boomer fashion – downsizing into an apartment. The rambling family home had had its (mostly delightful) time. It didn’t help that after years of benign neglect, an ageing house was having its own renovation revenge.
I got sick of worrying where the next leak would come from whenever rain threatened. Besides, most of the various 20-something kids had moved out. The youngest son had also quickly decided the prospect of moving in with a mate sounded much more fun than moving somewhere smaller with his mother.
But after several months the mate suddenly boomeranged back to his own father’s apartment. After weeks of looking at very expensive, very tiny apartments, guess who decided that temporarily moving back to home base to save some money wasn’t such a bad option after all?
At the same time, my young adult daughter and her partner were becoming increasingly concerned they would never afford to be able to buy when they move back to Sydney from Hong Kong in a few years.
Given the stubborn resistance of the Sydney property market to regulatory cooling measures, they thought it might make more financial sense to try to buy now. At least rental income could help with the initial mortgage payments. Guess who is following up on their online property searches?
This is making for some disheartening Saturday mornings. Of course, I understood the massive price escalation in Sydney housing having benefited from it. But there’s nothing like viewing how many dollars are needed to buy a modest one-bedroom 1960s red brick apartment in Sydney these days to bring that right back home. Oh for property foresight.
That’s assuming the bank is willing to lend any young couple the money in the first place – and that they then can afford to make principle and interest payments (with interest only loans now a no-no). Forget the lure of smashed avocado putting home ownership out of reach. Even a vegemite sandwich is a stretch at gargantuan debt levels when wages are modest and likely to remain so.
No wonder the latest figures show home ownership among those under 40 has dropped sharply from 2002 while mortgage debt for those who can manage to buy has more than doubled.
The 2017 Household Income and Labour Dynamics survey by the Melbourne Institute shows that 25 per cent of Australians aged 18-39 owned their homes in 2014 compared to 36 per cent in 2002.
Those are national figures and don’t capture the massive increase in the past few years in Sydney and Melbourne, meaning the change would only have become more dramatic since 2014.
The same goes for the debt levels of the minority who have been able to make the leap into the market since in Australia’s two largest cities.
Naturally, all this would have been easier to manage had wages growth not stayed stagnant – except, ahem, for executive salaries. That helps explain why the business community is getting so little traction in the campaign for corporate tax cuts.
In the public mind this becomes merged into a larger picture where those at the top do excessively well while many others are struggling to stay afloat, let alone get ahead.
As Bill Shorten recognises, there’s a reason why such a message has resonance with voters.
The HILDA survey also shows real annual disposable income for the median household – with an equal number above and below that level – was lower in 2014 than in 2009. That’s compared to a big jump from 2001 to 2009, another reason for the current nostalgia for the John Howard era of economic growth.
Using slightly different statistics, the mean or average income peaked in 2014 before falling back slightly last year, largely due to a retreat in the high salaries inflated by the mining construction boom.
That’s even though the overall inequality statistics on income haven’t actually varied that much according the HILDA’s preferred Gini co-efficient where zero equals perfect equality and one equals perfect inequality.
On this basis, it has remained just under or just over 0.3 for this century, largely due to Australia’s highly progressive tax and welfare system.
But for many people, it certainly doesn’t feel like that. Global asset inflation, largely reflected in Australia in house prices, has only sharpened the divide between those who have and those who don’t have yet – and now may never.
The large exception is a baby boom generation who bought homes when prices were relatively cheap even if interest rates were not. Many are also planning to – or being forced to – work well into their sixties.
The wealth effect means they can feel richer than a decade ago. At least until they have to figure out how to help their own children take the increasingly steep step into the property market – or have them move back home for a while again.