A generations-long shibboleth about house prices has just been shattered

It is – or was – the bedrock conventional wisdom of Australian politics.

As John Howard noted in a radio interview back in 2003, the nation’s voters want the value of their houses to keep going up and up and up.

“Anybody who owns a house is very happy that the value of that house has gone up; let’s be quite straight about that,” he told Brisbane radio.

“I haven’t found anybody in 7½ years shake their fist at me and say, ‘Howard, I’m angry with you for letting the value of my house increase’.”

For decades, the view among almost every member of the federal parliament, the shock jock community and the angry columnists of newspapers and pay TV channels, was that people did not want house prices to fall.

Onward and upward was the way to political success. And beware anyone who had the temerity to suggest a drop in house prices might be needed to keep homes affordable for new home-buyers.

But something has happened over the intervening two decades. The housing market has become utterly broken.

And the Australian public is changing its views in response.

Over the past month, three opinion polls – two for this masthead by Resolve Political Monitor, the other for Sky News – have revealed large numbers of Australians think house prices have to fall.

The most recent Resolve poll, released this week, showed the proportion of respondents who believe house prices need to drop had increased eight points over the past month to 61 per cent.

Just 9 per cent were opposed.

Across every age, voting and income group, most people said it’s time to end the housing party that’s been raging since the mid-1990s. From renters to investors, from One Nation supporters to rusted-on Coalition backers, from Gen Z to Boomers, all were agreed.

You could argue that survey respondents may back a house price fall if the property belongs to someone else.

That’s why Resolve asked a follow-up question. What sort of price fall would you accept for your home?

About 15 per cent said they wanted their house to keep going up, while another 23 per cent said they’d be happy for it to stay around the same price. But the rest backed a cut, including 14 per cent who could live with a drop of 20 per cent or more.

While Anthony Albanese and Jim Chalmers have talked about fixing the nation’s housing system, they’ve gone out of their way to suggest they aren’t targeting lower house prices. The budget’s negative gearing and capital gains tax changes, according to Treasury analysis, will mean house prices will grow about 2 per cent slower than they would otherwise.

When Housing Minister Clare O’Neil used the term “correction” to describe what is happening to the housing market at present, there was a pile-on from the Coalition and some media galahs, as if she had suggested razing entire suburbs. Where were these critics and their warnings of disaster during previous price corrections (2010, 2017-2019, early 2020, early 2022)?

Liberal housing spokesman Andrew Bragg instead held his tongue. Among all MPs in the major parties, Bragg has been alone in arguing that, especially at the entry-level end of the market, prices have to fall.

“The fact is that a young person knows the prices have been too high for too long,” he recently noted.

It’s a refreshing, and sadly rare, statement of the bleeding obvious. These recent polls suggest voters are on Bragg’s side.

An economic argument has developed over recent years described as the “housing theory of everything”. At its heart is the notion that housing – which has shifted from shelter to an investment asset – has become disproportionately central to our economies and societies.

From inequality to fertility to generational divisions to the banking system’s dependence on property, housing has captured and distorted economies in high-income countries. As the value of bricks and mortar has climbed, our societies and economies have become poorer in ways we’re just beginning to understand.

The worldwide slowdown in productivity this century has been accompanied by huge property bubbles, from London to Auckland to Toronto to Sydney.

Research released in April by the British-based Cambridge Centre for Economic and Public Policy suggests that the booming UK housing market artificially inflated official measures of GDP and productivity for decades. Britain’s productive capacity had been over-estimated by almost 20 per cent because of how such things as rent and the value of residential sales are accounted by statisticians.

It’s not as if history is devoid of examples of crazy house prices causing economic damage. Japan’s entire economy became addicted to the surge in property prices in the 1980s before it all came unstuck when an economic downturn in the mid-90s created a “lost generation” trapped in insecure work and unable to afford mortgage repayments on some of the world’s most expensive property.

Even earlier, 1880s “marvellous Melbourne” enjoyed a credit-fuelled property speculation boom. House and land prices unsustainably surged by 80 per cent in five years.

By 1892, the bubble burst and the economy was contracting by 17 per cent a year in what remains this country’s worst depression.

Melbourne, until then the nation’s most populous city and its financial centre, lost its crown to Sydney, which powered ahead. Melbourne was not marvellous for decades after.

Fast-forward to this century. When Howard made his comment to that Brisbane radio station, the average new Australian mortgage was $210,000. Today, it’s $735,000.

In Howard’s home town of Sydney, the median price in 2003 was $454,000. Now, it’s $1.6 million. Sydney is just one of five capitals where the median price is above $1 million.

For 30 years, house prices have outpaced incomes. This has forced banks to offer ever-longer loans to customers. It has led to a drop in homeownership among every age group and delayed coupling and the creation of families. It’s channelled trillions of dollars into splashbacks and fake grass backyards at the expense of new businesses and new ideas.

Voters realise it has to end. And in the process, they may finally break our politicians’ view of the property market.

Shane Wright is a senior economics correspondent.

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