If only we had a clue why home prices are soaring out of reach. On Monday Treasurer Scott Morrison offered half a clue. He told the Urban Development Institute it was all about supply. The more houses and apartments that developers were allowed to build, he said, the more residents would be able to buy.
That's true, if you avert your eyes from some of the more immediate reasons residents are unable to buy. And they're growing.
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Why house prices are so high
Peter Martin explains how concessional treatment of capital gains tax has driven Australia's housing prices.
Morrison said over the past 20 years the proportion of households either owning outright the homes in which they live or buying them with a mortgage has slid from 71 to 67 per cent. For Australians aged 25 to 34 the proportion has dived from 39 to 29 per cent, and for those between 35 and 44, from 63 to 52 per cent. These days only 13 per cent of new home loans go to first home buyers, down from 19 per cent.
So expensive are homes becoming that the share of median household income devoted to mortgage payments for Australians aged 35 to 44 has more than doubled in 30 years. Incredibly, it's happened at a time when mortgage rates have slid to their lowest on record.
Morrison says more houses and units will solve the problem, but at the rate at which they are being snapped up by investors (more than half the money lent to buy homes each month now goes to investors, up from 15 per cent during the 1990s) they won't help much.
As one of Morrison's colleagues, Liberal backbencher John Alexander, puts it: "It's not much good increasing supply if it's consumed by opportunistic investors."
What matters for a tolerable retirement (far more than superannuation) is owning the home in which you live. If you do, the age pension is enough to get by on. If you don't, you have to pay rent. Morrison's own figures show we are condemning more and more Australians to retirements burdened by rent.
Alexander conducted the inquiry into home ownership that the government seems to have sat on. Thirty hours of expert testimony and scores of submissions have produced nothing, so far. Work more or less stopped when Alexander was moved to another committee a year ago and then the inquiry was allowed to "lapse" after the election.
But looking through the hundreds of pages of transcripts it's possible to get a good idea of why home ownership is shrinking, and the best place to start is the evidence from Morrison's department, treasury, then run by Joe Hockey.
Graph 13 in its submission shows that up until the end of the 1990s the median dwelling price stayed in a tight band of 2.5 to 3 times household after-tax income. Then in the space of three years it shot up to near four times after-tax income and has stayed there ever since.
What happened at the end of the 1990s? In September 1999 the government halved the headline rate of capital gains tax, making negative gearing suddenly an essential tax strategy. Whereas before, renting out a house at a loss for tax purposes had been mainly an exercise in delaying tax, because the eventual profit made selling the property would be taxed at close to the seller's marginal rate; afterwards, with the profit taxed at only half the marginal rate, it became an exercise in cutting tax.
One of the barely stated reasons why house prices have been climbing out of reach of new buyers is many of us have been becoming richer.
Would-be investors poured into the market. One in every six taxpayers became a landlord. To get there and stay there they've had to outbid would-be residents. As the Reserve Bank's Luci Ellis put it succinctly in evidence to the inquiry: "It is a truism that if an investor is buying a property, an owner-occupier is not."
Far from seeing the explosion in prices as a problem, the Howard government embraced it as a sign of success. "Rising house prices make for happy voters," one of his parliamentary secretaries, Ross Cameron, infamously declared. Howard said he had never heard of a voter complaining about rising prices.
The invasion of negative gearers has been followed by an invasion of foreign buyers, who push aside would-be owner-occupiers in exactly the same way. Rather than living in the homes they've bought, they treat them as investments and either leave them empty or rent them out to tenants who would have once had a chance of owning them.
The 2011 census found an extraordinary 12 per cent more dwellings than households, some of them not bought to live in, others bought as holiday homes and second homes.
One of the barely stated reasons why house prices have been climbing out of reach of first home buyers is many of us have been becoming richer, and we seem to want better located and more expensive, and second homes more than anything else.
Reinstating capital gains tax and imposing a land tax would help, as would building more houses. But there is something in our psychology that's doing it as well. We seem to want to push up the prices we complain about. Adding "supply" might do no more than give us something else to bid up.
Peter Martin is economics editor of The Age
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