Australian Housing Crisis: Rising Interest Rates and Policy Shortcomings Challenge First-Time Buyers

Rising interest rates are painting a grim picture for the Australian real estate market, as recent developments see many Australians unable to afford the houses they’ve recently purchased. The house price crash, influenced heavily by these rates, sees homeowners especially in cities like Sydney, grappling with plummeting property values. As Roger Maynard reports, “In Sydney, for instance, higher interest rates have sent prices falling by between 10 and 15 per cent since property values peaked more than a year ago.” The situation is exacerbated by the Reserve Bank of Australia’s earlier indication that interest rates wouldn’t rise until 2024, a prediction that unfortunately did not hold true.

Many Australians are feeling the weight of their decisions. A resident highlights the predicament of numerous Australians saying, “A lot of people have paid a lot of money for their houses and now interest rates are going up, they can’t afford to pay it all back because they borrowed too much.” This situation is particularly distressing for young families, with some now without a place to call home.

However, the issue isn’t just with rising interest rates. Research from The Australian Housing and Urban Research Institute (AHURI) underscores that government intervention and sustained periods of low-interest rates have worsened the housing dilemma. Professor Stephen Whelan of the University of Sydney states, “While high house prices are often cited as the biggest challenge faced by FHBs, our Inquiry highlights that the problem is significantly more complex.” The AHURI research indicates a rising reliance on parental financial support and an increase in the age of first home buyers, moving from an average age of 26 in the 1960s to 31 by mid-2010s.

It appears that the well-intentioned First Home Owners grants and tax concessions might have inadvertently intensified the crisis. “Critically, we found existing policy settings are likely to have exacerbated rather than alleviated the challenge faced by first home buyers to finance home ownership,” notes Whelan.

There are calls for the Australian government to pivot towards supply-side measures to make housing more attainable. Among the proposals are tax-transfer reforms benefiting first-time buyers, targeting the challenges of borrowing money due to stagnant wage growth in comparison to housing prices, and providing alternative long-term home tenure options, such as rent to buy and shared equity schemes.

The silver lining, however, as pointed out by some real estate observers, is that the slump in housing prices might be nearing its end. Mr. Michael Pallier, managing director at Sydney Sotheby’s International Realty, hints at the role of immigration in holding up the luxury property market, noting, “We haven’t had migration for three years and they all have got to live somewhere… a lot of them have flexible budgets and are buying properties in our market at more than A$10 million (US$6.8 million) and they’re holding the prices up.”

While the Australian housing market battles these challenges, the hope is for swift, effective policies to alleviate the strain on both homeowners and potential buyers.

References:

Roger Maynard, “Why some Australians can’t afford the houses that they just bought, and may be forced to sell them.” https://www.channelnewsasia.com/world/australia-property-home-prices-rba-reserve-bank-interest-rates-3327521 

Thierry Ng, “Are soaring Australian house prices the only problems facing first home buyers?” https://thepropertytribune.com.au/market-insights/are-soaring-australian-house-prices-the-only-problems-facing-first-home-buyers/