This article was first published by Matt Wade on the 12th October 2016 via smh.com.au | Image: Illustration: John Shakespeare
It’s been a long boom. Prices in Australia’s two biggest housing markets have grown rapidly for four years. In that time the median price for a standalone house has jumped by 60 per cent in Sydney and 40 per cent in Melbourne, Domain Group figures show. Eye-popping auction results have grabbed countless headlines, along with the inevitable speculation about bubbles and busts.
But much less attention is given to how rising property values change our behaviour. The housing booms that are so much part of the modern Australian story alter the way we live.
Some house-price driven changes are obvious – like the tendency for young adults to live in the family home for longer than in the past. That trend is now showing up clearly in Australia’s demographic data. Bureau of Statistics figures show that the number of twenty-somethings moving between suburbs has declined in all states and territories since the middle of last decade. There is only one explanation – young adults are lingering with their parents. And the trend has been most acute in the housing markets most unfriendly to first-time buyers – Sydney and Melbourne. Home ownership rates among those between 25 and 45 years has fallen markedly during the past two decades. If that decline is not reversed, the proportion of life-long renters in Australia will grow.
The momentous shift to higher density living in our big cities is another palpable example. As the price of well-located urban land has increased relative to incomes, the incentive to live in units and townhouses has grown. Over the past year about 51 per cent of all dwelling approvals in Australia were for multi-unit houses, analysis by the housing industry shows (the proportion was 61 per cent in Sydney). Meanwhile, the number of small cottages with a yard that were once commonplace in our suburbs is in decline. If you’re going to have a standalone suburban house nowadays it makes economic sense to have a big one.
But the rising cost of housing reshapes behaviour in more subtle ways.
New research for the Australian Housing and Urban Research Institute by Sydney University economists Garry Barrett, Kadir Atalay and Rebecca Edwards draws attention to some of these significant but less heralded changes.
They examined more than a decade of data on the assets, borrowings and work patterns of thousands of households to investigate links between house prices, household debt and the jobs market.
One striking discovery was that house price movements have a “clear and consistent” influence on how much some people work. The biggest effect was on older women who own a home. The economists found that for every 10 per cent rise in house price there was an “economically significant” drop in labour force participation by single and partnered women aged 55 and over who own property (although not men). Why? The economists say there is a tendency for females in that age group to use any unexpected wealth gains from house prices to retire early.
Rising property values also affect the work choices made by younger women and men. Those between 20 and 40 years who own property cut back their hours of work, on average, following strong gains in housing wealth. At that formative stage of the family life-cycle many young couples use housing wealth gains to help manage the juggle between work and family.
“These gains in wealth effectively fund time away from work to undertake non-market activities such as providing household care for children, ageing parents, undertaking volunteer work or enjoying more leisure,” write Barrett, Atalay and Edwards.
It’s easy to see why people might use housing wealth to retire early or reduce their work hours to make life easier. But there is a downside for the economy because productive workers are withdrawing themselves from the labour market.
These trends – underpinned by developments in the housing market – counter the government’s aim to boost workforce participation, especially among older women, to offset the economic effects of an ageing population.
There is another important behavioural response to changes in house values – as prices rise, homeowners take on more debt. The economists found that for every $1000 increase in house values there is a $240 increase in household debt among homeowners. While a similar pattern can be found in other advanced economies, the rate at which Australian homeowners take on extra debt when house prices rise is noticeably higher than in the US and Britain. The researchers also found very highly leveraged households are the most likely to take on more debt in response to property price growth, leaving them financially exposed should prices fall or interest rates rise.
The run-up in debt among these vulnerable borrowers also poses a “systemic risk” to the broader economy warn Barrett, Atalay and Edwards.
It’s all part of the housing boom’s behavioural legacy.