The IMF’s Global Housing Watch recently ranked Australia as the third least affordable place in the world to buy a house. According to the IMF, the current ration of housing prices in Australia to average incomes is 31.6% above the historical average with New Zealand not far behind – see graph. The fact is that a significant number of the younger generation have been shut out of the property market and it doesn’t seem likely to change in the near future. The concentration of property ownership in the hands of the few will further increase global inequality which has it roots going back to the days of the classical economists.
David Ricardo argues that when population and output begin to grow steadily land becomes scarce relative to other goods. This in turn will lead to ever-increasing property prices and rents. Ricardo’s fear was that without government intervention by taxation on land value landowners would inevitably claim a greater share of national income, as the share for everyone else dwindled. However, Ricardo’s beliefs didn’t eventuate as the Industrial Revolution led to the decline of agriculture, and consequently a decrease in the value of farmland. But todays urban real estate prices is the farmland of the 1800’s and Thomas Piketty sees the long-term future as one of ‘economic, social, and political disequilibria of considerable magnitude’. Locking young ambitious people out of the property market can lead to feelings of powerlessness, disconnectedness, and disengagement can take root. Rising social unrest from increased inequality undermines trust in government and young people are left frustrated as pay trends fail to match a general improvement in educational attainment.
For most of the developed world property inequality needs to be addressed as home ownership for the youth of today is looking like a common misconception.
Source: New Philosopher