Last week a single house purchase in Australia knocked the cost-of-living crisis and the Gaza/Israel/Lebanon nightmare off the headlines. Not just any house purchase but Prime Minister Anthony Albanese’s purchase of a $4.3 million mansion on the cliff above Copacabana Beach north of Sydney.
Some commentators were outraged that a Labor PM could splash that much cash at a time when so many Australians are either struggling to make their mortgage payments or finding it impossible to even get a foot on the home ownership ladder.
Other commentators saw nothing wrong in principle with a highly paid politician buying a dream home but questioned his political judgement in doing so with an election due in the next six months. Many interpreted the timing as a sign the PM is preparing for life after politics, not a good look shortly before an election.
Inevitably, Albanese’s house purchase focused attention on Australia’s housing crisis. It’s a crisis driven by ongoing high interest rates, elevated immigration levels, high construction cost inflation, and record house prices across the country. It will be front and centre in the 2025 federal election.
Australian Bureau of Statistics figures released this month reveal that the total value of Australia’s housing stock is approaching $11 trillion. In the June quarter the mean house price rose by 1.6% to nearly $975,000.
The ABS figures for the last five years show rapid house price growth from the start of the Covid-19 pandemic, a temporary dip from March 2022 to March 2023, and then a return to steadily rising prices.
The total value of dwelling stock
Source: Australian Bureau of Statistics
According to CoreLogic’s data, house prices grew a further 1% in the September quarter. The figure for the annual growth rate is 6.7%. That is down from the recent high of 9.7% in the quarter to March.
Of course, the growth is not even across the country. Perth is the standout capital city with house prices rising 24.1% in the year to 30 September to reach a record high. Brisbane was up 14.5%, Adelaide up 14.8%, and Sydney up a more modest 4.5% in that period. All three cities hit all-time highs. Melbourne and Hobart are the exceptions with both enduring quarterly and annual value drops.
Melbourne is now down 5.1% from its high in March 2022. This translates to a major change in recent years in the price relativity between Melbourne, Brisbane and Sydney.
An analysis of global housing trends from AMP this month ranks the three capital cities in terms of ‘price-to-income ratios’, a key test of affordability. With a ratio of 12.8, Sydney is Australia’s most expensive housing market, although it’s only marginally more expensive than Auckland. Brisbane is more affordable than Sydney but now noticeably less affordable than Melbourne, a big shift in the last few years.
Source: AMP
The bottom line for the Albanese government is that these ratios make home ownership unachievable for many Australians. Housing affordability, or the lack thereof, spells political trouble six months out from an election. The government’s dilemma is heightened by the significant increase in rents in recent years.
There’s no easy solution to the housing crisis. Existing homeowners and landlords like rising house prices and rents. Prospective homeowners and renters do not. In that environment, there’s more downside than upside for the government.
Interest rates, immigration, housing construction, and tax policy are the key issues.
The government is desperate for a drop in interest rates. However, the Reserve Bank of Australia is in no hurry to lower them given its concern that inflation is still a threat to the economy. Two of the obstacles to a rate cut are high government spending at both state and federal level and a very resilient labour market. The latest unemployment statistics show that unemployment remains relatively low at 4.1% and the participation rate is rising.
Immigration continues at high levels and is taking longer than expected to bring under control. A constant stream of new arrivals exacerbates the housing shortage, particularly in Sydney and Melbourne.
At the last election, the government committed to an ambitious target for the construction of new housing. That target is looking increasingly unachievable and may well come back to haunt Anthony Albanese. (He should have seen from the experience of the Ardern government that setting ambitious housing targets is a risky strategy.)
There are increasing calls from some quarters for changes to the tax regime to make housing less attractive to investors. That would involve stopping negative gearing (the ability of landlords to offset losses from their rental activities against other income) and reducing the ‘capital gains tax discount’ (the 50% discount from the tax for gains made on property held more than twelve months).
The problem for the government is that such tax changes would be deeply unpopular in ‘middle Australia’ where owning one or two investment properties is widespread. To date Albanese has ruled out such changes for fear of the electoral consequences.
In short, the housing crisis is a major political problem for the government but many of the possible solutions are fraught with political risk.
In the meantime, house prices in most of Australia look set to continue their rise, albeit at a slower pace than in 2023/2024.
The top end appears particularly strong. Take the case of Scott Farquhar, the billionaire co-founder of software giant Atlassian. In 2017, he set the Australian house price record when he paid $71 million for a Sydney waterfront mansion. This month, having abandoned plans to renovate the property, he unloaded it for $130 million. But don’t worry, he’s not homeless. At the end of 2023 he purchased another Sydney pile for $130 million.
It puts Prime Minister Albanese’s $4.3 million purchase in perspective.
*Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.