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Why falling house prices aren’t the calamity the media would have you believe

Interest rates would appear to be a national obsession: but are we worrying too much? AAP

Welcome to Safe as Houses, a series delving into a topic close to the heart of many Australians - property. This is not a series on where the market might be heading. Instead we aim to explore how we view property and float some alternative ideas.

Judging by media reports, a great number of us are transfixed by interest rate changes and consumed with anxiety about falling house prices. But should we be? Today, Keith Jacobs from the University of Tasmania explores who the real losers are when prices fall.

One of the most fascinating and enduring aspects of Australian politics is the cacophony of criticism directed at the federal government whenever house prices fall. The assumption made is that the value of property is a proxy for the state of the economy.

A fall in the value of property is therefore bad news and evidence that we stand to lose should prices continue to decline. We expect governments to put in place measures so that homeowners and investors can accrue wealth and buyers can return to the market.

Over the coming months, the cacophony of criticism is likely to intensify, as real estate, developer and property lobbyists demand extra government funds to boost housing market activity. According to the recent data published by RP Data-Rismark, the value of our homes has fallen by 4% in the last 12 months, with Canberra being the only capital city where prices have increased. In Brisbane there has been a 7.5% fall, while in Melbourne prices are down by 5.8%.

But is it really bad news if the value of homes starts to fall? Certainly, there are people who do stand to lose when prices decline, such as householders who plan to sell their home and move to a smaller or less expensive home and those planning to move abroad and need to sell their home.

Those who have the most to fear when house prices fall are mortgage lenders, the real estate companies and property developers. Their opportunities for generating profits are threatened by a slowdown in the housing market.

Yet there are many individuals who stand to benefit when prices fall, not least those who have been unable to gain a foothold in the owner-occupied market, householders who plan to trade-up to more expensive properties, newly arrived migrants who plan to buy and renters living in homes that might have otherwise be advertised for sale.

What is frequently overlooked is that any increase in the value of our homes accentuates an affordability crisis. In the last 20 years, Australian house prices have quadrupled in price, yet average earnings have failed to keep up, only increasing by two-fold over this period.

The cumulative impact of house price inflation has been considerable. It is estimated that there are as many as 1.25 million low-income households paying more than 30% of their income on housing related costs, that there are 250,000 people who have placed their names on public housing waiting lists and as many as 60,000 individuals who are homeless. The shortage of properties for let has enabled unscrupulous landlords to raise rents and many households have no choice but to live in homes that are in poor condition.

Yet the crisis of affordability and the conditions endured by many households is often sidelined because so much of the media reporting on housing issues is fixated on monthly changes in house prices in the suburbs of our capital cities. The barrage of house price data reported in media outlets serves to shift our gaze from the inequities that underpin the housing market and the stress endured by so many low-income Australians.

Why has this crisis of affordability not been addressed by government? A major reason is that powerful industry groupings such as the financial sectors, property developers and real estate lobby groups have been spectacularly successful in maintaining pressure on the policymakers to privilege wealthy homeowners at the expense of less well-off households.

Some fascinating research undertaken last year by Judy Yates of University of Sydney makes explicit how subsidy arrangements favour well-off homeowners. If we include inputted rent and capital gains that are not subject to taxation, total government expenditure on housing stands at just over $53 billion per year, most of which ($45 billion) is expended in the form tax relief for owner-occupiers and rental housing investors ($5 billion).

By contrast, those households living in rental accommodation are subsidised by $3.2 billion. For individual homeowners this subsidy amounts to around $8,000 per year, investors are subsidised by $4,000 while concessions to private renters amount to just $1300 per household and public housing tenants $1000 per year.

Recent analysis published by the Australian Bureau of Statistics estimates that the median net wealth of households who rent in 2009 was just $55,265 whilst householders who own their home but are paying off a mortgage had a median net wealth of $487,183. Those homeowners who own their property outright had a median net wealth of $737,394 – 13 times greater than the median wealth of those who rent.

It is an uncomfortable truth that government policies have been instrumental in maintaining housing inequality. The current taxation arrangements serve the interests of homeowners and rental investors, and politicians are reluctant to advocate reforms that might damage their electoral prospects.

Those in Australia who are fortunate enough to own their own home have become accustomed to believing the value of their home should rise and that the capital gains they accrue should be exempt from tax. The media in their role have largely failed to make explicit the societal implications of the current housing arrangements.

Our obsession with the value of our homes has, in effect, stymied the scope for a more critical coverage of the politics of housing to shed light on how resources have been distributed to those who are well housed at the expense of those who are experiencing housing stress.

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