Is it time to give up the Great Australian Dream?

| April 27, 2017

In Western Europe, home ownership has never been regarded as a must-have. Peter Strohkorb argues it might be time for Australians to adjust their attitude and consider long-term renting as an alternative to owning property.

For generations home ownership has been The Great Australian Dream. To own your own quarter acre block with a modest house has been the measure of success for our grandparents and ancestors. They were prepared to work hard over many decades and to forego luxuries in the pursuit of that dream.

As cities grew and the population increased, demand rose and house prices followed the trend up. Eventually, our big cities sprawled ever further outward and an alternative came to light: We decided that higher density was a solution. So we subdivided our blocks and built more town houses and other medium-density housing. Around the turn of the century apartments came into vogue and we now have residential high-rise buildings all over our cities. Higher density brought with it new problems, and our cities’ infrastructure became a challenge. Roads are clogged with additional traffic, schools are overcrowded, car parking is at a premium, shops and recreational amenities can no longer cope with the demand.

Yet still, real estate prices keep going up in a seemingly never-ending fashion. People who are looking to buy their first home are ever further squeezed from the market. It has become an election issue and politicians have weighed into the debate, offering various “solutions”.

As far as enabling first home ownership is concerned, there are really only two options:

  1. Make more money available to first home buyers (or reduce cost to buy)
  2. Increase supply of real estate

Both options are flawed.

Making more money available ( e.g. through early access to superannuation savings) will only drive up demand, leading to higher prices, while increasing supply (e.g. by releasing more government-owned land and building more homes) will only encourage real estate investors to buy more negatively-geared property, squeezing first home buyers out of the market and perpetuating the fundamental problem of home affordability. There will always be people in a better position to buy real estate than others – just look at the frustrations we are seeing at property auctions by people whose ability to borrow funds was eclipsed by another buyer.

But: Are we looking at the debate from the wrong perspective? Is the Great Australian Dream still realistic in the 21st century?

Is there another, potentially better, way?

In Western Europe, home ownership has never been regarded as a must-have. I have an uncle in Germany who has been living in the same small high-rise apartment since the nineteen seventies. Home ownership in Germany is very low, and most people rent for all or most of their lives. The laws protecting tenants are very strong and are geared in favour of long-term tenants. Ever since the great depression and the hyper-inflation of two world wars the Germans have developed a fear of debt. Owing money is seen as something that Germans are not proud of, and so their attitude to borrowing large amounts of money from a bank that has its profits and its shareholders at heart, rather than its customers, is not an attractive solution in Germany.

Instead, the Germans have elected to spend their income on lifestyle, such as travel, furniture, cars, eating out and entertainment. German companies offer more annual leave to their employees than Australian ones. That is why the Germans are able to take more advantage of more available cash and more days off to travel extensively and frequently. No matter where in the wold you travel you are bound to run into Germans at some point. They’re ubiquitous.

Are Germans worse off than Australians because they don’t own their own homes? I don’t think so. They have become used to free cash flow and low asset ownership and are quite happily largely debt-free. Australians often say that they want to own a home to leave an inheritance to their children, but even that argument is flawed.

Following the death of a parent, dividing a single fixed asset among multiple children can lead to unpleasantness such as sibling conflict, unnecessary legal cost and avoidable emotional pain. Germans don’t tend to pass on their family home as their inheritance, instead, they leave their cash and debt-free status to their descendants.

So, perhaps it’s time for Australians to adjust their attitude, rather than bemoan the vanishing dream of home ownership, high house prices and huge debt to faceless banks. It has been done elsewhere and the world did not come to an end there. Quite the opposite, the world has opened up to people who are debt-free and cashed up to enjoy a good lifestyle. Who do you think is better off here?

Housing Affordability Online Consultation:

Q: What can be done to improve housing affordability?