Page 13 - BOL Jul20 Edition

The Housing Boom

Propelled Inequality,

But A Coronavirus

Housing Bust Will

Skyrocket It

A housing boom that lasted from the mid-1980s with only employed in industries where jobs have now collapsed. Another
minor interruptions has added to rising income inequality in 135,200 recent first home buyers with high loan-to-valuation
Australia. Yet an impending housing market bust, triggered by the ratios are also at risk of going “underwater”, with homes worth less
coronavirus pandemic and the resulting spike in unemployment, than their debt. Many of them are also in precarious employment,
will not restore greater equality. On the contrary, recent history irrespective of the pandemic. (These figures do not include first
shows housing busts can worsen inequality. home buyers in 2018-19, for which data are not yet available.)

Those who benefit most from a boom are not those who pay the Renters’ relief could be short-lived
price when it busts. And those harmed by the boom often become Many private renters hope a housing downturn will translate into
even more vulnerable during the bust. lower rents and perhaps give them a chance to buy their first
home in a more affordable market. However, this is not always the
Our analysis highlights the risks for people who bought their first case in a downturn. In the US from 2007 to 2009, despite declining
home at the peak of the boom. We estimate 24,000 households house prices, rental affordability stress has only increased.
are at very high risk because they took out large loans that might
soon exceed their home value and also work in sectors with high In Australia, the sudden decline in international students and
job losses. Another 135,200 are at high risk and 121,000 are at short-term rentals has increased long-term rental vacancies in
moderate risk. some areas. Reports suggest rents are going down, especially at
the upper end of some rental markets.
Coronavirus has set up a housing bust
Experts have long cited an upsurge in unemployment as the main However, in the longer run, the slowdown in housing construction
threat to house price growth. This risk became reality with the will create supply shortages, leaving rental vacancies low and
coronavirus pandemic. Over the seven weeks from mid-March to rents high. Many landlords, mostly “mum and dad” investors, have
early May, jobs fell by 7.3%. taken large loans to finance their property investment. They will
need to keep rents high to hold on to their investment properties.
Unless employment rapidly recovers, the housing market is facing
a major downturn. In one worst-case scenario released by the Lower house prices will enable some households to become
Commonwealth Bank, house prices could fall by up to 32% over home owners for the first time, after being locked out of the
the next two years. market during the boom years. These households could benefit
from a coronavirus housing bust if the market then recovers. Even
Recent first-time buyers are most vulnerable so, their gains will do little to change the overall trend of rising
Households that can hold on to their homes and weather the inequality made worse by the housing downturn.
storm until the market recovers are not substantially harmed.
Established owners, who bought their homes before or early in We need to flatten out booms and busts
the boom years, have enjoyed the largest increase in their home Improved housing affordability is necessary to reduce social and
values, and the largest reductions in their debt. This puts them in a economic inequality. A housing downturn will reduce house prices.
position of relative resilience to a housing market bust. But this downturn, when coupled with rising unemployment,
will not deliver greater equality, especially if it’s followed by yet
In contrast, evidence from the 2008 housing crisis in the United another boom.
States shows which households are most at risk. These were
households that bought their first home with no deposit, or a very Australia has flattened the curve of COVID-19 infections. To be
low one, in the period leading up to the 2008 crash. The crash left successful in reducing inequality, we need to flatten the curve of
these households “underwater”, trapped with an asset worth less both booms and busts in the housing market cycle. And only a
than their mortgage debt. Many defaulted on their mortgages, thorough overhaul of national housing policy will achieve that.
fuelling the housing market’s downward spiral.
Written by: Ilan Wiesel, Senior Lecturer in Urban Geography, University of
The Australian housing market and financial institutions differ Melbourne; Liss Ralston, Urban Statistician, Centre for Urban Transitions,
from those in the United States in 2008 in fundamental ways. Still, Swinburne University of Technology and Wendy Stone, Associate
Professor, Centre for Urban Transitions and Director, Australian Housing
Australian households that bought their houses at the peak of the and Urban Research Institute Swinburne Research Centre, Swinburne
boom and have now lost their jobs in the coronavirus pandemic University of Technology.
are facing the highest risk. This article is republished from The Conversation under a Creative Commons license. Read the
original article: https://bit.ly/3dM0zHs
These include 24,000 recent (2014-5 to 2017-18) first home buyers
who borrowed over 80% of the value of their home and were
July 2020 www.bestoflocal.com.au 13