By business editor Ian Verrender

The possibility of younger people breaking into the property market was short-lived during the coronavirus pandemic.(Reuters: David Gray)
For a brief, flickering moment, the dream of a generation seemed within reach.

House prices were on the cusp of one of the biggest falls in decades, hit by what was shaping up to be a near-lethal combination of mass unemployment and zero immigration.

After decades of a seemingly unstoppable real estate bubble, the prospect of a sustained fall in housing prices brought a glimmer of hope to those under 35 that home ownership may become a possibility if they could hold on to a job.

Even relatively conservative analysts were forecasting house price declines of 20 per cent and back in May our biggest bank, the Commonwealth Bank of Australia, pencilled in the prospect of a 32 per cent collapse.

But the decline was to be short-lived and far more modest.

With interest rates now barely above zero, plus an effective health response to the pandemic and Federal Government stimulus mitigating the worst of the economic calamity, real estate quickly bounced back.

For the first time in years, housing prices in all capital cities are rising simultaneously and regional real estate is experiencing a sustained lift as workers, having discovered they can operate just as effectively away from the office, are seeking cheaper rural and regional living arrangements.

Housing credit suddenly and unexpectedly has experienced an enormous growth spurt which has coincided with the Federal Government’s Homebuilder grant.

And let’s not forget the Government proposal to unwind responsible lending laws, giving the banks open slather when it comes to home loans.

Owner-occupier home loan commitments hit a record $22.7 billion in October, according to the Australia Bureau of Statistics (ABS) data released last week, up more than 30 per cent from a year ago.

Chart showing the great increases in house prices across Australia.
House prices in Australia’s major cities have most increased since 2006.(ABC News: Alistair Kroie)

We are not alone. Across the ditch, New Zealand housing prices are on a tear.

They have risen 19.8 per cent in the year to October, igniting talk of a crisis as the idea of affordable housing has vanished in a puff of smoke.

Our leaders love to talk about “affordable housing”.

But they are loath to ever do anything about it.

And almost every initiative they stump up, from raiding your superannuation to finance a deposit to first home buyers grants, usually only serves to further fuel extra demand and push prices higher.

It’s an uncomfortable fact no-one wants to confront. But the only way housing ever truly can become affordable is for prices to fall.

Every time they do, though, the potential fallout on the financial system usually is considered too great a risk, and new measures are invoked to keep the bubble inflating.

A large For Sale sign stands out the front of a large paddocked area.
Australians are moving to regional areas where house prices are cheaper, as working from home becomes more normal.(ABC South East SA: Bec Whetham)

Our banks essentially are building societies. Their loan portfolios are dominated by mortgages over property.

So, a sustained property collapse would put the banks and the entire financial system under severe pressure.

Affordability isn’t merely about price, the cost of servicing a loan is almost equally as important.

And with those costs now at historic lows — new loans can be priced at under 2 per cent — borrowers now are paying far less for much greater sums.

That is what is fuelling demand. There is a strong likelihood that interest rates will remain at much lower levels than previously anticipated for a very long time.

But if the turnaround in prices continues at the current clip, the window for entry into the housing market is likely to be brief.

In fact, on current trends, our national housing market is likely to be back in record territory by early next year.

Interestingly, it appears first home buyers have dived in in recent months. As the graph below demonstrates, investors have been largely absent.

The recovery has been driven almost entirely by owner-occupiers.

Chart showing a sudden spike in owner occupiers borrowing money for new home loams.
There has been a recent spike in new home loans from owner occupiers.(ABC News: Alistair Kroie)

In 2015, investors accounted for almost half of all home loans.

That now has dropped to around 22 per cent.

But as the economy bounces back and rents improve, they are likely to return in force, given borrowing costs are as cheap as chips.

It’s already turning, as you can see from the gold line above.

How older generations cornered the property market

Younger generations progressively have been priced out of housing for the past 40 years.

And it is a trend that continues even as those generations get on in years.

In 1980, according to federal government research, almost 70 per cent of those aged between 30 and 34 were home owners.

These days, only around 50 per cent of that age group own a dwelling.

Chart showing the decline in home ownership with younger Australians having a low proportion.
Home ownership has been on a consistent decline with young Australians suffering lower proportions.(ABC News: Alistair Kroie)

And as they age, the rate of home ownership is unlikely to match those of similar age groups in previous generations.

The longer-term consequences of this trend are deeply concerning.

According to former Federal Treasury heavyweight Mike Callaghan, who recently compiled a report into our superannuation system, those who retire as renters face significantly greater financial challenges than those who own a home…

This article is from the ABC News, you can read the full article here: