Graph shows millennial housing problem

 

Australian housing is still wildly unaffordable, and no, we can't actually solve that by simply asking young people to stop talking about it.

Despite a fall in house prices during 2018 and 2019, Australia's house prices are still among the highest in the world compared to incomes. The release of the 16th annual Demographia International Housing Affordability Survey confirms what we know - houses cost a gosh-damn fortune.

But it also highlights something we continually overlook. It doesn't have to be this way.

As Australians, we are surrounded by high prices. I'm resigned to seeing six-figure prices on houses in Melbourne, including in some far-flung suburbs. But the figures for the rest of the world remind us this is the exception not the rule. As the next graph shows, New Zealand is doing worse than we are, but major countries such as the US, UK and Canada have much more reasonably priced homes compared to incomes.

How housing affordability compares across nations.
How housing affordability compares across nations.


Sydney has house prices at 11 times incomes. Major cities such as Chicago manage house prices of four times incomes. Even New York house prices are five times incomes. The way it is in Australia is not the way it has to be.

Australia has got itself stuck, for now. House prices have run so far ahead of incomes that we can't let them fall, because that will make lots of borrowers unhappy, and crush confidence in the economy. The best answer would be to help incomes catch up to house prices, but we don't seem to know how to do that either. It's a paradox.

Housing is less affordable than in the 80s and 90s.
Housing is less affordable than in the 80s and 90s.


SOLVING THE PARADOX?

One answer to housing affordability complaints comes to people's lips faster than any other: MOVE!

"Perhaps people should stop whingeing and simply move," reads a representative online comment I found.

This is a popular trope, when homeowners, encountering the lamentations of younger generations about affordability, get cross. Indeed, when you look outside Sydney and Melbourne, you find greener pastures. Even the Demographia report acknowledges that.

"There is only one affordable market, Gladstone, Queensland," it says. The Queensland city of Gladstone, about 500km north of Brisbane, has some very attractive looking real estate.

How about this enormous place with water views for under $500,000?

Bargain.
Bargain.


Or this house with a beautiful lawn, plus a balcony as large as a Redfern terrace house, for under $250,000?!

Would buy.
Would buy.


Yes, Gladstone has higher unemployment than Sydney or Melbourne, but it's hardly an economic desert, with unemployment averaging about 6 per cent, and plenty of resources industry jobs advertised online.

So why not move?

The answer is that moving doesn't scale. Gladstone has 30,000 residents. Sydney has six million. Yes, a few people could move, but not everyone. Asking young people to move to solve housing affordability is about as smart as Joe Hockey's advice for young people to get a better job. It's nice advice to give to one person, but if you're thinking about the system as a whole you have to realise it doesn't work.

THE PRICE OF MOVING

What's more, moving isn't free. I don't mean that you have to pay for moving trucks, although you do. What I mean is that when you move, you lose a lot of contact with your social networks and your family. That matters because people are much more than just their financial resources. Yes, you can get a much cheaper mortgage in Gladstone, but isolation from all the people you know is hard, especially as you get older and have kids.

I moved cities in Australia in my early twenties. That's a time when you want to spread your wings a bit, chase a good job, see what the rest of the world is like. I later moved back to Melbourne, where I was raised. That's a very common pattern, because those personal relationships are extremely valuable.

When people say they think it's unfair they can't buy in Sydney, what they're really saying is that the people in their life are too valuable to give up. Instead of mocking them for being greedy, we should acknowledge they are real people with kids in school, parents getting older, and dozens of friends, all of whom they hold dear.

If the price of our economy is that people can't live in the same cities they grew up in, can't live in the same city as their parents and friends, that's an enormous price to pay. I'd much rather reach for the Chicago solution or the New York solution - massive cities where housing is not ridiculously unaffordable.

Originally published as Graph shows millennial housing problem


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