The Australian Bureau of Statistics statisticians recently found that “Mum and Dad” mass ownership of Australian rental properties is a complete fiction (of News Ltd). The majority of rental properties (some 60%) are owned by the wealthiest 10% of citizens, who typically own numerous properties, because returns on rental property consistently outperform stocks and shares, year on year. About 31% of Australia’s housing stock is rental property, and the proportion is rising rapidly as investors convert more homes into rentals, leaving proportionately less housing available for families to buy.
The house price-to-income ratio (median multiple) in Australia compared to ratios in other OECD countries show that Australia is a clear outlier in un-affordability. As housing economist James Gruber observed, “The jump in the median multiple of Australia is something to behold. In 1987, the price-to-income ratio was just 2.8x fold, comparable to rates in other countries. In recent years, the multiple in Australia has seen a tremendous uplift, from 6.9x fold in 2019, to 9.7x fold in 2024.” The massive rise over the last five years coincides with our inflation crisis.
The Australian median multiple is more than twice that of the US market at 4.8x fold, and almost twice that of the UK at 5x fold. Gruber notes, “Australia’s five major eastern capital cities are considered either ‘severely unaffordable’, with price-to-income ratios between 5.1x and 8.9x, or ‘impossibly unaffordable’, with median multiples of 9x or more. Sydney has the least affordable housing; with a median price-to-income ratio of 13.8x, it is the world’s second least affordable city. Yet, the level of home ownership does not explain why Australia prices are so much higher than others. Our home ownership rate of 66% is similar to other OECD countries.”
Gruber used data from Demographia’s International Housing Affordability Report, which claims Australia’s “housing crisis stems principally from land use policies that artificially restrict housing supply, driving up land prices and making homeownership unattainable for many”. Watching the inexorable spread of outer suburbs around our cities, 40 km or more into the surrounding countryside and towns, where Melbourne is now almost contiguous with Geelong, and Brisbane with the Sunshine and Gold Coasts, suggests that even if land supply is one factor, it is not the major cause.
How can the Australian housing market exist with repayment cost-to-income ratios twice as high as in the US and UK? Low and middle income wage earners cannot afford such mortgages. The unaffordable ratios exist because there is no longer a truly free housing market; rather house prices are controlled by an unholy alliance of the banks, estate agents, and their very best clients – investors in commercial housing.
Commercial investors are prepared to out-bid home buyers as their higher mortgages will be recovered though (unregulated) rents, and then there is negative gearing for offsetting commercial property costs when it is empty. Higher property prices increase their wealth portfolios, and their control of the market is assured as others cannot enter it. Australia is turning from a land of individual home ownership into one with a large class of renters who can never purchase their own home, and a small increasingly fabulously wealthy group of landlords.
Attorney-General Mark Dreyfus claims it was all the result of “foreigners”. Australia’s property market is inflated by overseas crooks who launder black money by buying houses here. His comment obscures criticism of the Albanese Government for doing little to combat Australians profiteering with housing. Instead, he blames the “disreputable foreigner”, while his government also seeks to limit foreign immigration – both ideas draw on the populist race card. If housing price inflation was just due to money-laundering foreigners, they should have purchased a significant proportion relative to local investors.
Well, money launderers certainly come here to “wash” their money clean because the investment is rapidly more valuable, as all house prices are inflated by home-grown housing speculators, by oligarch landlords, by condominium developers, by avaricious estate agents, and by the biggest profiteers of all, the big Australian banks.
The higher the house price, the larger the mortgage; and the higher the RBA base interest rate, the higher again the mortgage rates. Our banks are significant contributors to the Australian housing crisis, preferring to loan to the large rental property owners over first home-buyers, because these commercial investments are more secure, and of course, their mortgages are much larger.
The other major players driving Australia’s price inflation ever upwards have also been in the news, the two largest supermarket monopolies: for price gouging; the international fast food chains and small groceries: for underpaying staff; the international fossil fuel cartels: for exploiting motorists; the big four banks: for charging dead customers; and the now privatised urban utilities for water, electricity and gas; for ever higher prices. Each of these economic sectors has been investigated either by Royal Commissions, or Parliamentary inquiries, or by Independent Regulatory Agencies, typically for misdealing with the public. Undeterred, the companies continue to hike prices and post record-breaking profits, year in, year out. They all claim onerous rising costs, yet remarkably their profits also rise onerously. Companies continue setting ever higher prices using inflation as a smokescreen, and thwarting the RBA’s efforts to control it.
Last week, the Coalition suddenly refused to allow the reorganisation of the RBA’s policy boards, claiming Labor will “stack them” with ideologues. The refusal occurred despite shadow treasurer Angus Taylor already approving the RBA reformulation with Treasurer Jim Chalmers. The blocking smacks of Peter Dutton wanting ongoing inflation pain to continue, and to embarrass Labor. Economic blocking tactics are the hallmark of the US Republican’s frequent attempts to stymie Democrat budgets, precipitously threatening shut-down of all US government spending.
Three decades ago, the Coalition introduced tax changes that favour moneyed investors, as part of a long-term plan to return Australia to the 19th century, just like in the US. A semi-feudal economy of landed wealthy and a perpetual underclass of poor renters and desperately poor homeless.
The Albanese Government inherited the Coalition’s disastrous decades of bad laws and even worse economic policies, and must fight Coalition attempts to worsen our inflation crisis. The prime minister must also realise that international corporations are taking us for a ride on their inflation pony; it will buck eventually (electorally?) and throw us again onto the scrunched back of the Coalition.
Keith Mitchelson
Keith Mitchelson has a 40-year experience in academic and commercial biotechnology sectors in the UK, China, and Australia.
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