Hockey on house prices: Two incomes now necessary.

I went to the Melbourne Institute economics conference yesterday and heard Joe Hockey speak at lunch. He’s not bad on his feet. Even when he’s not across the detail, he bluffs well. He seems likeable and projects passion.

But he said something I couldn’t quite believe.

Let’s face the reality. Unlike our parents, our generation and the ones that follow will not be able to afford a house in a capital city on just one income.”

This little message came in the middle of a spiel about how the paid parental leave scheme would pay women to raise kids. I wondered if it was a slip-up. But no. He said it again later.

“Try living in any capital city in Australia on just one household income. It’s nigh impossible. But the mortgage still keeps coming in. And the bills still keep coming in.

While this matched my own experience quite neatly – I don’t own a house and wouldn’t consider buying one without going halves in it – I doubted a Treasurer should accept it as a fact.

But perhaps the problem is too far gone. Here’s a table I made that shows who might be able to afford what.

But perhaps the problem is too far gone? Here’s a table I made that shows who might be able to afford what. (The cheapest house I could find in Melbourne was this one bedroom unit in Noble Park for $160,000.)

house prices out of reach
The average house (~$550k) is unaffordable on the average wage

When lone-person households are our fastest growing demographic group, making up 24 per cent of Australian households, and single parent households are raising over a million children (961,000 single parent families representing 15 per cent of all families), house prices rises seem less like a boon to the economy and more like a social welfare disaster.

Systems that permit stability of tenure for renters should be introduced as a matter of urgency. Housing affordability is at least partly a policy question. As a starting point, Treasurers should talk about low housing affordability as a problem, not as a fact.

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

2 thoughts on “Hockey on house prices: Two incomes now necessary.”

  1. Love the table.

    I think demand will always outstrip supply in the housing market. That means if you are trying to live in the inner suburbs of a capital city, it will just get more and more expensive over time, or houses will become a rare commodity and most people will live in apartments. It doesn’t matter what economic policy you put into place, this will eventually happen.

    So as people move further out, I think the key is not so much housing affordability but rather infrastructure, especially three pillars of public transport, health and schools.

    If, for example, the government would have the foresight to build better rail connections, and you could travel express to work in half an hour then I don’t think it really matters if you lived further out.

    Unfortunately I fear this will never happen and we’ll be forever arguing over whether house prices are too high.

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    1. I can think of a few economic policies that would make house prices sink like a stone!
      But a more reasonable policy would be one that sees house prices rise, but at or below the rate of inflation.
      Macroprudential and zoning laws would be good examples.

      Like

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