In Australia, there are few films as beloved as 1997′s The Castle. It is a comedy about a working-class family from Melbourne who live in a house beside a noisy airport and are offered a significant cash settlement by the authorities to vacate their beloved family home. The family refuses and fights back in court, ultimately winning. The film is still endlessly quoted across the country, a testament to how much it resonated with everyday Australians.
The Castle was a comedy, but it also skilfully played on the Australian fixation with property. The Australian dream is seemingly not completed until the keys are turned into a purchased home. This dream comes at a cost, with many Australians now unable to afford minimum payments on their mortgages.
According to the International Monetary Fund, Australian households with mortgages are the second most likely to default in the developed world, just behind Canada. There is a range of risk indicators, including high levels of household debt, rising house prices, and fluctuating mortgage rates.
Like most of the world, Australian mortgage rates are rising, and households are scrambling to see where their budget can be tightened. They have not been helped by the governor of the Reserve Bank of Australia Philip Lowe who stated in a speech in 2021 that interest rates would remain at historic lows until at least 2024.
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Houses were bought across Australia on the back of Lowe’s words. Mortgage brokers advised clients to not worry about fixed-rate deals due to Lowe’s guidance. The coast was clear and the low-interest wave was going to be ridden a while longer, with a window to buy property.
Lowe is still apologising. He described his advice regarding rates not rising until 2024 as “embarrassing”, and said the Reserve Bank of Australia “should have done better”. The apologies are welcome, but they will provide little relief to Australians who now spend thousands of extra dollars to service their mortgages after believing his advice.
There will be limited sympathy in some quarters for homeowners who expected historic low-interest rates to last forever. The rates have pushed housing prices up to some of the most expensive in the world. In Sydney, the median house price is well above €600,000, with Melbourne not far behind it. Traditionally, Brisbane and Hobart have provided more affordable and relaxed lifestyles for homeowners, but the domino effect of people being priced out of Sydney and Melbourne has increased their housing prices significantly.
Ownership only represents one side of a significant housing crisis in Australia. There is also a lack of affordable options for prospective renters in big urban centres. In January, Dubliner Ciara O’Loughlin had just arrived in Sydney and arrived in Randwick to view a rental property. O’Loughlin’s TikTok video of the huge queue of more than 100 people went viral and highlighted an issue that is talked about across Australia.
According to the National Australia Bank, 40 per cent of renters are dealing with very high levels of financial stress. It is a landlord’s market, where the lack of supply and huge demand is driving prices up. The Sydney Morning Herald recently reported a renter in the beachside suburb of Tamarama who had been told that his rent was going to increase by 65 per cent, from $670 a week to $1,100.
Renters across Australia have been sent letters informing them of rent increases to bring them in line with the market rate. Sadly, the market rate is completely unaffordable.
Australia has low wage growth, high inflation and a chronic housing shortage for renters. During the pandemic, Australia’s incoming numbers of temporary and skilled migrants stalled to a trickle with borders sealed shut for large amounts of time. Migration is now returning and the Australian treasury estimates an extra 235,000 new migrants will arrive each year. The federal government and state governments are grappling with the housing shortage, not only in terms of affordable properties to buy, but to rent. They simply have no concrete solutions on the table at present.
Property is a national obsession across the country. The pursuit and pricing of property is a daily pastime that shows no sign of slowing down. While housing prices in prized city suburbs surge and make the wealthy even more secure, the economically vulnerable are left even further behind. The Reserve Bank of Australia will not be allowed to touch its crystal ball and predict interest rates for a while. Instead, it will have to confront the cold, hard reality of the Australian housing crisis.