Markets 
Opinion
It did not take long for the complaints to start.
Minutes after stories appeared last week that house values and prices were falling in Sydney and Melbourne, catastrophising about this “bad news” began in earnest.
Property owners flooded comments sections to bemoan the drop that amounted to $7000 off the $1.6 million median house price in Sydney.
One news outlet complained that Melbourne had lost its “status” as a member of the $1 million club.
No one should be happy to be a member of that particular club.
Welcome to the disaster that is the Australian Ponzi property market.
We all know that housing is way too expensive – every one of the nation’s capital cities is ranked among the 20 least affordable cities in the world.
Demographers believe one of the reasons for falling fertility rates (and the delay in couples starting families) is high-cost housing.
As a society, we are eating our future generations while scrolling through our favourite Insta real estate influencers as they highlight the best Italian splashbacks.
And whenever there’s even a sign that prices may be correcting, there are those (who own a home) warning it’s the end of days.
Australians have gone from believing that housing was shelter to thinking it was an investment opportunity.
John Howard hit the nail on the head back in September 2003.
Doing Brisbane morning radio amid concerns that houses were out of the reach of young Australians, Howard noted the mindset of most home owners.
“Anybody who owns a house is very happy that the value of that house has gone up, let’s be quite straight about that,” he said.
“I haven’t found anybody, in seven-and-a-half years [as prime minister], shake their fist at me and say Howard I’m angry with you for letting the value of my house increase.”
When he made the comments, Brisbane’s median house price was just under $250,000. It reached $1 million in 2023 and now sits at about $1.2 million.
Wages have not grown nearly as quickly as property prices for decades. Since 2000, average weekly wages have increased by 150 per cent compared to the four- and five-fold jump in housing.
To make up the difference, Australians have dramatically increased the amount of debt they’re willing to take on to buy a home. That has climbed four-fold over the past 25 years (the average new mortgage in NSW is now $871,000).
Banks once offered home loans that were repaid over 20 years. That was pushed out to 25 years as mortgages swelled. They are now at 30 years with some non-bank lenders offering even longer terms to keep repayments manageable.
Older Australians are now retiring with sizeable mortgages. Often they use their superannuation to cover that impost, eating into their own retirement earnings.
No wonder as a society we are beholden to the Reserve Bank’s regular meetings. Many governors have noted that no other country is as infatuated by the movements in official interest rate settings as Australia.
That was a point touched up by Howard in that 2003 interview.
“One of the reasons why housing prices have gone up is that people can afford to borrow more because interest rates are lower. In a sense, we are the victims of our own success and our own prosperity,” he said.
He was absolutely correct.
While the interplay of supply and demand is at the heart of our housing problems, interest rate settings are a factor.
The biggest increase in house prices this century occurred in 2020-21 as the RBA took the cash rate to 0.1 per cent.
It’s not a coincidence that the slowdown in prices over the past two months has occurred as the RBA started lifting rates.
This week’s decision by the bank to lift rates again will play into the property market, creating downward pressure on prices. But because this nation has stuffed up housing policy so comprehensively for so long, even that is a two-edged sword.
The Reserve has downgraded its forecasts for new dwelling investment, indicating that fewer than expected new homes will be built. Higher construction costs is one factor – but so is the RBA’s policy settings.
In other words, the rate rise may eventually improve affordability (by curbing price growth) but at the cost of fewer homes, which adds to affordability problems.
Ultimately, the plight we find ourselves in – and which is going to ruin our kids’ future and the futures of their kids – is our fault.
We’re the ones who decided to turn shelter into an investment opportunity. We are the ones who decided we must have rooms for a gym, a study, a home cinema to the point that Australians build the largest houses in the world.
The harsh reality, something none of the major parties want to admit, is that house prices have to fall if they are ever going to be affordable.
The entire market has to make a step down in prices (preferably over some time as a sharp correction would pull apart much of the nation’s banking system, which has played its own role in this property Ponzi).
We also have to build more homes.
As Peter Tulip, chief economist at the Centre for Independent Studies, this week noted, the city that has kept a lid on prices the best over the past few years – Melbourne – is the one that has built the most homes.
The city has added a million residents over the past decade. Over that period, it maintained the highest dwelling completion rate per resident of any capital.
It may no longer be a member of the $1 million club. But there will be generations of people in cities like Sydney, Brisbane, Perth, Adelaide and Canberra who wished they were so lucky.
Shane Wright is a senior economics correspondent.
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.From our partners
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