This week the Coalition committee enquiring into housing affordability came up with the conclusion that nothing could be done. That was stating the obvious – a bigger question is why did it take the committee almost two years to work it out.
It simply can’t be done. The catalyst for the global financial crisis was President Clinton’s idea that housing should be available to everybody. It started with a boom as the American property market became overbuilt with loans being offered to everybody irrespective of ability to pay. It finished with a bust whose reverberations are still being felt around the world.
But the global financial crisis was more than a bust. It triggered collapses in stock markets everywhere, and interest rates around the world falling to historically low levels as central banks tried in vain to stimulate their economies.
Australia was not immune. But what was different here, was a growing attack on our superannuation system by many politicians, and so-called independent think tanks.
So we faced the perfect storm. The average Aussie investor had lost all faith in the stock market, they had been scared off superannuation because of all the adverse publicity and threatened changes, and knew that earning a piddling 2% in the bank wasn’t the way to go long term.
Consequently, they went for the property market. And as interest rates fell, making mortgages more affordable, prices started to rise and, as always happens, the moment any asset class starts to rise in value everybody wants to jump on the bandwagon. Yes, that made it tougher for first home buyers but historically every initiative by government to make housing more affordable has simply raised home prices, because more buyers are attracted to the market. Think first home owners grant, and stamp duty concessions. The more encouragements governments give, the more housing prices rise.