Why Labor’s promise to help young people get into the housing market is hollow

Labor’s claim to be the party that will fix Australia’s housing affordability crisis is looking rather hollow and more like unconvincing marketing masquerading as economic modelling.

For the past 25 years, house price growth has vastly outgrown wage increases, locking out a generation of prospective property owners.

The average, full-time salary is no longer sufficient to buy the median-priced house in any major capital city.

Record-low interest rates during COVID turbocharged prices in previously flat and affordable markets like Brisbane, Perth and Adelaide.

In these cities, prices have doubled since early 2020 but average wages have grown by just 22 per cent during the past six years, only for high inflation to cause pay levels to go backwards, in real terms, during an immigration-fuelled population boom.

This hasn’t stopped Treasurer Jim Chalmers claiming that Labor’s curbs on negative gearing and capital gains tax concessions would see more young Australians buy their first home.

“From our point of view, nothing has changed our view that this is a really important reform because for too long Australians, and particularly young Australians, were locked out of the housing market,” he told ABC News Breakfast on Friday.

Labor is sticking to its claims that its May Budget changes would only see prices slow by 2 per cent, than would otherwise have been the case, over a two-year period.

“That assumption Treasury made in the Budget is a two-year assumption and so again, I would encourage people to understand that,” Dr Chalmers said.

Housing Minister Clare O’Neil was also sticking to the political script on Friday, hiding behind Treasury modelling.

“I invite people to come back and have a look at the Budget papers, which lay out very clearly the impact of the tax changes on what’s going on in the housing market at the moment,” she told reporters.

“The Budget papers clearly showed that the impact of the tax changes will be to slightly slow growth that would otherwise occur in the market of around a two percentage points difference.”

Claiming a slowdown in property price growth would give more young people a chance at home ownership is insulting our collective intelligence.

Australia’s median-priced house cost $995,600 in August even after a 3.3 per cent decline over three months, Cotality data showed.

An average, full-time worker on $108,352 is only able to conservatively buy a $650,000 apartment with a 20 per cent deposit, given the Reserve Bank’s three rate rises this year have diminished what banks can lend.

Only much higher savings from selling another property, or more likely financial help from the Bank of Mum and Dad would enable more choices.

Even if national home prices were to fall by 9 per cent from peak to trough by 2027, as the Commonwealth Bank is suggesting, this would barely undo the 10.3 per cent growth in Brisbane’s median house value in the year to August 31.

Nor would it even tackle the 15.6 per cent surge in Perth prices during the past year or the 8.6 per cent increase in Adelaide, in markets where $1 million barely buys the typical house with a backyard.

Yes, Sydney prices are 5.5 per cent weaker than a year ago but the median house price of $1.495m is beyond the reach of a working couple on average salaries borrowing at their maximum capacity.

The Commonwealth Bank, Australia’s biggest home lender, is predicting a 13 per cent plunge in Sydney prices from the February peak, but this would only see prices slide from $1.607m to a still expensive $1.398m.

Melbourne is the outlier with its market peaking in March 2022 but a 12 per cent forecast decline from $930,000 would only take prices back to $818,400.

A forecast 8 per cent peak-to-trough decline in Dr Chalmers’ home city of Brisbane would only see house prices fall from the May peak of $1.233m to $1.134m — hardly an affordable price.

An 8 per cent projected drop in Perth, from an April peak, would only see values ease from $1.088m to a touch over $1m.

In Adelaide, an 8 per cent drop from a May peak of $1.013m would only see values moderate to $932,087.

ANZ’s head of Australian economics Adam Boyton noted first homebuyers would be unlikely to benefit as the steeper declines in house prices were concentrated in more expensive suburbs.

“Is housing affordability and that challenge solved by a 10 per cent decline in house prices? I certainly would not want to suggest to you, Senator, that that would solve that challenge,” he told a Senate hearing into intergenerational housing inequity in Canberra this week.

Net overseas migration last year slowed to 301,000, from record-high levels approaching 550,000 in 2023, and the Treasury Budget papers promised this would slow to 245,000 this financial year.

But it would still be more than double the 104,210 level of 1999 when the 50 per cent capital gains tax discount for investment properties came into effect, ahead of the mining boom fuelling a big surge in overseas arrivals that contributed to Australia’s housing crisis that lingers to this day and underpins support for One Nation.