This week’s news of Australian house prices rising to a new record this month is notable, although, with significant inflation affecting the country for the past 18 months, that won’t be a new peak in real terms.

Even so, a 7.6 per cent since January 2023 means a resumption of real terms price growth. That seems surprising at a time when interest rates have been rising and could rise further, and many recent FHBs are under severe financial pressure as a result.

Latest ABS data shows investor landlords coming back into the market. But first home buyer demand has dropped to the low level seen for most of the past decade and is unlikely to rise again in the near future – especially if prices continue to rise and/or interest rates remain around the current level.

Most famously personified in comments by former prime minister John Howard, Australian governments have historically welcomed rising house prices as signifying consumer confidence. Even academic researchers and government analysts have cited house prices as a sign of the regional economic “success”.

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Nowadays, though, as demonstrated in our 2021 research, most economists in the field would say that rising house prices are not something to celebrate. Not only are they a problem because they lock more young people out of home ownership, but because of their damaging economic effects on Australia as a whole. This is an issue for everyone, not only those hoping to grab onto the bottom of the property ownership ladder.

As explored in depth as part of City Futures Research Centre work led by Visiting Professor Duncan Maclennan, there are three key issues:


Disproportionate house price inflation has been a key driver of rising wealth inequality in Australia over recent decades.

People owning property and those whose parents own property have gained – the biggest gainers being those with the most expensive homes or the most valuable rental housing portfolios. Young people without home owning parents are increasingly disadvantaged in their chances of achieving this status.

Rising inequality is also damaging to economic productivity – so say the OECD, the IMF and many leading economists.

Indebtedness and financial stability: Australia is one of the most mortgage indebted countries in the world. Measured according to mortgage debt to GDP. This makes our economy vulnerable to financial instability. Reserve Bank’s wariness about house price booms is motivated by this concern.

Diversion of investment away from productive activity: over-expensive housing – both house prices and rents – swallows up too much household income, crowding out scope for spending on goods and services that generate more of an economic return. The result is a hit to GDP and, therefore, population welfare.

For all these reasons, it’s essential that the Commonwealth Government’s forthcoming National Housing and Homelessness Plan calls out excessively expensive housing as a problem to be tackled head on, committing to the fundamental reforms needed to address the issue. And, while these must include measures to enable expanded housing supply to parallel population growth, more affordable prices and rents cannot be simply achieved by de-regulating planning.

Given the complexity of Australia’s housing affordability challenge, a much wider range of actions will be needed, sanctions that also encompass tax and other changes that similarly call for visionary national leadership.

As emphasised by City Futures colleague Dr Chris Martin, for the NHHP we need, fixing market failures and filling unprofitable gaps in the market will be insufficient. Rather, the Plan must break with neo-liberal orthodoxy by embracing the need for a stronger market-shaping and market-participating role for the government itself.

Hal Pawson, City Futures Research Centre

Hal Pawson is Professor Housing Research and Policy and Associate Director at the City Futures Research Centre, UNSW. More by Hal Pawson, City Futures Research Centre

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