The Grattan Institute report, released earlier in March, found that Australian house prices have more than doubled in the last 20 years. The rise has been particularly sharp in the last six years, with house prices increasing 50 per cent in Melbourne and around 70 per cent in Sydney since 2012.

Grettan Institute Report

So, what caused this steep increase?

According to the report, soaring house prices are in response to a number of factors, primarily rapid population growth, falling interest rates, rising incomes, and restricted housing supply thanks to government planning decisions.

Even though a recent construction boom has meant more dwellings are popping up, particularly in Sydney, it’s not enough to meet the rapid population growth.

“Today’s record level of housing construction is the bare minimum needed to meet record levels of population growth driven by rapid migration,” says John Daley, CEO at the Grattan Institute. “Meanwhile a decade of accumulated shortages are forcing younger people to set up their own homes later in life.”

Housing affordability affects all levels of the population, but among those most affected are young Australians and those on low incomes.

One of the key findings in the recent Grattan Institute report is that the proportion of younger home owners has plummeted. According to recent census data, only 44 per cent of people between the ages of 25 and 34 own homes, compared with 61 per cent in the early 1980s. Home ownership by 35 to 44-year-olds has also fallen dramatically in this time.

Lower income earners also struggle because investors benefiting from negative gearing and low land tax have driven up house prices in cheaper suburbs.

A lot of Australians already pay a large portion of income on rent and mortgage costs. The worry is that mortgage stress will increase if interest rates rise. This stress may affect new home owners and people wanting to enter the property market.

Daley says one solution to housing affordability is more dwellings. “Affordability will only get a lot better if governments ensure more homes are built,” says Daley. “state governments should fix planning rules to allow more homes to be built in inner and middle-ring suburbs of our largest cities.”

Daley also suggests that negative gearing needs to be abolished, and the capital gains discount reduced. He says there are no easy answers, but the Commonwealth and state governments need to take positive action to address housing affordability in Australia to avert a crisis.

While government needs to take action, the population also needs to take responsibility, according to Daley. People opposed to housing density need to consider that increasing housing supply means more Australians will be able to own their own home now, and in the future.

Book a consultation with your Smartline Adviser to chat about how you can own your own home.

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