Real estate ‘time bomb’

Study calls for royal commission as house prices continue to soar

SOARING house prices pose a “threat” to Australia’s economic future, driving inequality and damaging productivity, a report suggests.

Major reforms are needed to stabilise the housing market, including a royal commission, based on findings from the University of NSW Sydney’s City Futures Research Centre.

Housing: Taming the Elephant in the Economy highlights the opinions of 87 economists and other housing market experts on the impacts of prices on the economy.

It reveals national household debt has more than doubled over the past three decades, from 70 per cent of GDP in 1990 to almost 185 per cent in 2020.

It exposes a “ticking economic time bomb” if interest rates go up, the study’s authors warn.

In addition, house prices, which have risen by 10 per cent in the year to April, are forecast to rise up to 14 per cent in the coming year, placing home ownership further out of reach for many.

Report lead author Duncan Maclennan, said the housing system was dysfunctional at all levels and an inherent risk to the economy.

The report also says the system is failing young people, who are being locked out of the market in growing numbers.

Professor Maclennan said an immediate overhaul was needed.

“Australia’s approach to housing policy has fuelled income and wealth inequality, and created significant economic instability,” he said.

“This is becoming a huge drag on productivity, and warping Australia’s capital investment patterns.”

Prof Maclennan said the problem demanded a royal commission be established to investigate how to defuse the “time bomb” and create a more equitable market.

Everybody’s Home national spokeswoman Kate Colvin said while surging prices had left some wealthier and older Australians better off, younger and poorer Australians were much worse off.

“It’s time to shine a light on the fundamental flaws ... and create a concrete plan of solutions that work to address growing housing inequity, like building more social and affordable housing,” Ms Colvin said.

The report recommends a national housing strategy and a permanent housing committee as part of the national cabinet to fix the housing system.

It also recommends switching housing stimulus efforts to support the social rental sector.

The study also called for the Reserve Bank of Australia’s accountabilities to include housing market stability.

“The commonwealth government’s policy actions are boosting inflationary pressures, and the RBA has effectively washed its hands of responsibility,” Prof Maclennan said.