Australia’s housing downturn might need to continue for a generation if home ownership is to become affordable again.
Home prices fell 0.4 per cent nationwide in June after a 0.3 per cent decline in May, according to data house Cotality.
But the downswing in Australia in recent months had barely eroded the affordability gap that has built up over years of house prices outpacing wages growth, housing expert Peter Tulip said.
“We would need decades more of this,” the Centre for Independent Studies chief economist told AAP
“We would need this to continue for a generation or two before people start thinking that the housing crisis is over.”
Buyer sentiment has taken a dive following three Reserve Bank rate cuts, rising affordability constraints and the federal government’s changes to investor tax breaks, with clearance rates hanging below 50 per cent in consecutive weeks.
But the scale of the downturn remained modest, Domain chief economist Nicola Powell said.
Capital city prices would need to fall by about 22.8 per cent to return to their previous trough in March 2023 – far beyond anything seen in three decades of housing cycles.
Analysing the past eight price cycles since the mid-1990s, housing upswings tended to be longer and steeper than the downturns that followed, Dr Powell said.
The former Reserve Bank economist says two dynamics tend to put a floor under prices in a downturn: home owners pull back from selling; and the limited ability of the construction sector to build new homes constrains supply.
Undersupply of homes remained the fundamental issue making housing unaffordable, Dr Tulip said.
Still, house prices falling was good news, he said.
“And I really don’t understand why the government doesn’t welcome it,” he said
“How can you say housing is too expensive and not want prices to be lower?”
Opposition Leader Angus Taylor attacked Prime Minister Anthony Albanese over the price falls in question time on Wednesday, asking if he would guarantee house prices won’t fall further.
The coalition claims the downturn will send home owners into negative equity – when the amount they owe on their property is more than it is worth.
Cotality research director Tim Lawless said there was a risk first home buyers who accessed the government’s five per cent deposit guarantee scheme could end up in negative equity if prices fell further.
But it would not be a major problem unless owners were forced to sell, which would be relatively rare given the robust labour market and Australia’s stringent lending rules, he said.
Dr Tulip said there was no prospect of substantial mortgage defaults anywhere in the outlook.
“Opinion polls show large majorities of voters, including large majorities of home owners, want lower prices,” he said.
Independent senator David Pocock said the job had only started on addressing housing and urged the government to boost investment in social and affordable housing.
He is set to introduce a bill to the Senate on Thursday which would force developers to set aside 30 per cent of homes for affordable housing on land sold off by the federal government.