The most realistic way for many Australians to enter the housing market is to receive help from their homeowning parents, the Reserve Bank of Australia has admitted, leaving little hope for those whose families don’t already own a home themselves.
Speaking before the Standing Committee on Tax and Revenue for an inquiry into housing affordability and supply, Reserve Bank of Australia (RBA) assistant governor Luci Ellis on Monday confirmed the fears of thousands of young Australians locked out of the hyperactive market.
“There’s a mechanism by which children can relatively easily end up being home owners” if their parents already own a home, Ellis said.
That ‘mechanism’ involves parents using the equity in their property to guarantee new home loans for their children. The alternative: parents can leave the family home as an inheritance upon their death.
While things are already tough for those relying on the generosity of their elders, people whose parents rent their home “are going to be in a much more difficult situation,” Ellis said.
It is a “fact” that “some people will find it easier to purchase a home than others based on the socioeconomic position they were born into,” she added.
Ownership vital to avoid poverty in retirement: RBA
Echoing the experience of financial counsellors and social workers, the assistant governor also suggested home ownership is a key determinant of hardship later in life.
“If you own your own home at the point you retire that’s basically the thing you need to do to not to be in poverty in retirement,” she said.
And Australia’s prevailing policy mix means homeowners are unlikely to downsize in retirement, Ellis said, keeping even more homes off the market.
“A lot of people are holding on to more houses than needed in case they need that asset base for aged care,” she said, resulting in “people in homes that are perhaps a bit too big for them now.”
The fact the home is not counted as an asset under the current pension test has further skewed the market, Ellis added.
The central bank’s frank home ownership admissions back up the experiences of countless young Australians, whose quest for home ownership feels increasingly farfetched.
That sense of disillusionment has only grown after months of incessant house price growth across much of the country.
Domain reports Sydney median house prices hit nearly $1.5 million in September, rising more than $6,700 a week for the past year.
Prices have risen more than 15% in every capital city over the past twelve months, driven by high demand, record-low interest rates, and a suite of government incentives through the COVID-19 pandemic.
The average Australian dwelling price grew to $836,000 in November, the RBA says. In other terms, middle-of-the-road home prices are now 5.5 times the average household disposable income.
Inquiry chasing housing market solutions
The inquiry was launched in September with the goal of investigating how Australian tax, regulation, and housing supply have impacted pricing.
Ellis said these dynamics are “something that is worthy of public consideration,” but stopped short of announcing hard-and-fast central bank interventions to elevate home ownership rates.
The RBA has already ceded rock-bottom interest rates have inflated housing prices. However, it has refused to lift the rate prematurely, citing a risk to jobs in Australia’s ongoing recovery from COVID-19.
Instead, in their opening remarks to the inquiry, Ellis and her RBA colleague, head of economic analysis Bradley Jones, suggested a suite of supply-side changes.
Improved planning systems, new transport infrastructure, and lowered construction prices could make it easier for young Australians to climb the property ladder, they said.
“But they will not undo the fact of rising demand, and they will not prevent price increases entirely,” Ellis and Jones added.