Is the Aussie Dream being Crushed?

May 28, 2024
Posted in Home Buyers
May 28, 2024 Luke

Is the Aussie Dream being Crushed?

For generations, Australians have aspired to own their own home. Homeownership was seen as the reward for hard work and the gateway to middle-class stability. But in recent decades, this dream has slipped out of reach for many. increasing home prices and rising rents have made housing unaffordable, fueling economic inequality and anxiety. How did we get here, and is there a way out of this crisis?

Surging Demand, Stagnant Supply

Several factors have converged to inflate Australian housing costs. On the demand side, population growth remains high, largely driven by immigration. At the same time, construction of new homes has stalled, with new housing starts dropping to the lowest levels in years.

The pandemic accelerated these trends. With lockdowns and remote work, many sought larger suburban homes, further squeezing supply. Builders struggled with materials shortages, labour crunches, and a wave of industry collapses. The resulting imbalance between demand and supply has brought up prices.

The addition of Interest Rates

While higher prices are detrimental to affordability on their own, it’s the combination of high prices and rising interest rates that is truly painful for buyers. After the pandemic, inflation took off globally, forcing central banks to reverse years of rock-bottom rates that had fueled borrowing.

Lower rates previously masked worsening affordability, allowing larger mortgages that simply drove prices higher. But now, higher interest rates have baked in the affordability crisis. Barring another economic shock, rates are unlikely to return to zero again.

The Bank of Mum and Dad

Faced with impossibly high barriers, more first-time buyers are turning to the “Bank of Mum and Dad,” receiving an average of $27 billion in family assistance last year. This intergenerational wealth transfer is widening inequality between those who inherit property and those priced out of the market.

Our situation

After decades of promoting property ownership and investment, Australia now faces a complex affordability crisis with no quick fixes. With shelter a major need, the social impacts of unaffordable housing demand urgent action. But stabilising the market will require carefully balancing supply and demand over the long term. For now, the dream of home ownership will remain out of reach for many Australians.

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