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Housing affordability has been front of mind for Australians over the last few years as home prices have skyrocketed once the scourge of COVID-19 eased.
Unsurprisingly, this has been a key issue for many voters in the lead-up to Saturday’s (3 May) federal election, who will have a plethora of options to consider in regard to the housing policies of the major parties.
Cotality’s (formerly known as CoreLogic) head of research Eliza Owen said that housing in Australia is an “essential service” and the country’s “largest asset class”, meaning that any policy shift must “weigh the benefits to buyers against the long-term consequences for financial stability, household debt, and household wealth”.
Indeed, the latest data released by the Australian Bureau of Statistics (ABS) has shown that total household wealth in Australia grew to $17 trillion in the December quarter 2024, while the total value of residential dwellings grew to $11 trillion.
Owen posed one “uncomfortable question” underpinning the housing debate: should home values come down?
According to Owen, values do not need to continually rise to deliver strong capital gains for many existing home owners, saying that Cotality’s own quarterly data reinforces this notion.
The data showed that should national home values fall by 10 per cent, the majority of home owners would “remain in a strong equity position”.
“In the December 2024 quarter, 95.7 per cent of residential resales achieved a nominal profit,” Owen said.
“If resale values were reduced by 10 per cent, 88.5 per cent of vendors would still have recorded a gain, with the median profit sitting at $263,000.”
Additionally, a 10 per cent fall in national home values would simply “rewind the market back to May 2023 levels”, Owen said, with the median value-to-income ratio falling to 7.2 (which sat at 8 at the end of 2024). This would mean a 20 per cent deposit on the median dwelling value in March 2025 would fall from $164,000 to $148,000.
Owen said: “One of the greater financial risks of falling home values recently cited in the lead up to the election is negative equity, which is where home values fall to be less than the value of outstanding mortgage debt.
“The RBA estimates less than 1 per cent of mortgaged households are in negative equity, and this is in part due to high home values.
“But, as noted in their latest financial stability review, ‘even when faced with a severe 30 per cent decline in housing prices, around 9 in 10 mortgagors would still have positive equity’.”
Owen said that it is important to note that the financial position of most mortgaged households has been stable over time due to being lent against strong buffers, whether that be a 20 per cent deposit or serviceability buffers.
“Some of the policy proposals floated ahead of the election, such as expanding low home loan deposit schemes or reducing the serviceability assessment buffer, may pose more risk to financial stability unless housing values do in fact continue to rise,” she said.
“A fall in values need not be viewed as a negative for the Australian economy. Housing is not only an investment, but also something people consume.
“If housing costs were lower relative to income, Australians could redirect more spending to health, education, and technology, potentially even increasing earning potential as a result.
“Put another way, it wouldn’t be the end of the world if prices were to moderate or even fall slightly.”
[RELATED: House prices climb for 9th straight quarter]
