This essay argues that real house prices are being pushed up to levels which require buyers to take on large amounts of debt that are repaid later in the life course. As a result Australian home buyers are exposed to higher levels of credit risk for longer periods of their lives, as evidenced by growing numbers of Australians on the edges of home ownership. Until recently, expansion at the urban fringe was the ‘safety valve’ that allowed growth in owner occupied housing demand to be met without soaring real house prices, but natural limits and metro planning strategies have closed this safety valve, and Australia urgently needs new safety valves to ease market pressures. It proposes a number of possible solutions involving change to fiscal arrangements and planning mechanisms.
The essay also argues that there has been a shift from government responsibility for welfare to an individualised asset based welfare approach with housing wealth the most important asset in most home owners’ wealth portfolios. Tax as well as asset test concessions encourage this outcome, but housing investment risks cannot be hedged. The recent credit crunch and house price slump in many overseas markets has exposed serious flaws in a debt-financed ownership system that does not allow owners to shield themselves from investment risks. Australian home owners have been fortunate to avoid the worst of the shocks precipitated by the global financial crisis but even in relatively stable Australian housing markets where real average house prices have trended upwards, capital losses eventuate. Owners have also become more accustomed to using new flexible mortgage products to dip into their housing wealth, and so use housing wealth as a financial buffer to meet welfare needs. As this welfare role for housing wealth grows in importance, owners will need more protection against investment risks. Governments or market players will need to provide greater protection to individuals for system sustainability.
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