Leith van Onselen: Australia has turned into a nation of debt slaves

Australia has turned into a nation of mortgage debt slaves, with the number of $1million-plus suburbs doubling in just four years, a former Treasury expert says.

Leith van Onselen, chief economist of MacroBusiness, said the spiralling cost of housing will make many asset-rich in retirement but cash-poor through much of their working lives as they pay down a huge mortgage.

‘Australia has condemned future homebuyers to debt servitude or being locked in the rental market,’ Mr Van Onselen said in his essay: “Australia: a nation of housing millionaires and mortgage slaves”.’ 

In just four years, the proportion of suburbs with a middle home price above $1million has more than doubled, worsening Australia’s housing affordability crisis, new CoreLogic data showed.

Australia’s median capital city house price of $997,352 is now almost 10 times Australia’s average, full-time salary of $100,017 – restricting purchasing mostly to double-income couples or the very wealthy.

‘The rise in Australian home prices has negatively impacted our children, grandchildren, and future generations, who will be required to pay considerably more for housing than they should, making them poorer,’ he said.

‘In short, most of Australia’s household wealth is fake since it is tied up in overpriced properties and cannot be realised.

‘Is Australia genuinely “wealthy” when housing affordability is at a record low, and our younger generations cannot afford a home without parental financial support?’

Almost a third, or 29.3 per cent, of Australia’s suburbs had a median property value above the $1million mark in August, CoreLogic revealed on Thursday.

At the onset of Covid in early 2020, just 14.3 per cent of Australian suburbs had a median house and unit price in the seven-figure range.

CoreLogic economist Kaytlin Ezzy said national home prices had climbed by $53,000 in a year despite the Reserve Bank increasing interest rates 13 times in 2022 and 2023.

‘With almost 30 per cent of suburbs now posting a seven-figure median, the increase is a natural consequence of rising values and worsening affordability,’ she said. 

Australia’s debt crisis is so bad the Reserve Bank’s own Financial Stability Review released last week said mortgage stress levels could worsen unless interest rates were cut.

‘Stress on households and businesses would be magnified if economic conditions deteriorated further than anticipated and/or if inflation and interest rates were to remain high for longer than expected,’ it said.

Leith van Onselen, the chief economist of MacroBusiness, has made this point in a provocatively-title essay: ‘Australia: a nation of housing millionaires and mortgage slaves’

Little Real Estate’s executive general manager of sales and marketing James Kirkland said younger Australians could no longer afford to buy a house in a big city like their parents’ generation.

‘Right now, it’s really difficult for any young person,’ he told Daily Mail Australia.

‘I’ve got a lot of young family members and clients that have children that are trying to make that step and without mum and dad stepping in – which is unlike most of the generations before us.’

Young people could now only enter the property market as investor landlords, rather than being owner-occupiers in a house near where they worked and had a career.

‘It’s harder to buy a property, move into it,’ Mr Kirkland said.

An immigration surge has led to a national undersupply of housing, with more than 500,000 foreigners, on a permanent and long-term net basis, arriving in the year to March. 

This has also meant house price growth has vastly outstripped wages growth, leading to ballooning debt levels for those who get into the housing market. 

Australia’s household debt levels now make up 184.7 per cent of disposable, after tax income, which is significantly higher than the U.S. level of 97 per cent.

‘Australia would be a considerably more egalitarian society, and we would be financially better off if our homes were half the price they are now and we did not carry so much debt,’ Mr van Onselen said.

But possible rate cuts in early 2025 could led to even steeper house price increases, with banks able to lend more when the Reserve Bank cuts the cash rate from an existing 12-year high level of 4.35 per cent. 

‘I just think we’re going to see a lot of transactions between really now until next winter,’ Mr Kirkland said.