Rising house prices slow the economic growth of Australian capitals: report

Rising house prices are slowing the economic productivity of capital cities across Australia, plunging the country into a housing situation that one expert has described as a “human rights crisis”.

Astronomical house prices in capital cities like Sydney were forcing young home buyers to move further away from the CBD, with their productivity and job skills lost to city-based businesses, professor of property and housing economics with the University of South Australia, Chris Leishman, said. 

Professor Leishman was the lead researcher on the new report from the Australian Housing and Urban Research Institute (AHURI), Relationships between metropolitan, satellite and regional city size, spatial context and economic productivity, released on Thursday.

It showed soaring house prices in Sydney and other capital cities were now so unaffordable young people were unable to live near the types of jobs where they could earn more money to spend. 

“There is growing statistical evidence that rising ‘quit rates’ due to unaffordable housing and long commute times are already affecting cities such as Sydney, London, Toronto and Los Angeles,” Professor Leishman said. 

Evidence showed that businesses were struggling to get the staff they needed at wages they could afford to still be competitive in a global market, he said.

While other capital cities have seen price rises, Sydney’s property values have led the way, pushing prices well past those average wage earners can afford, the report said. 

Prices soared by a massive $103,000 in the space of just three months this year, to a median of $1,309,195.

Over the past year, Australia’s national median house prices rose by $81,438, fuelled by low interest rates, a shortage of stock for sale, and people’s pandemic-fuelled desire to buy a bigger home with more space.

It comes at the same time as a report from the United Nations labelled New Zealand’s housing market, which has seen median house prices soar from $620,000 in May 2020 to $820,000 in May 2021, a “human rights crisis”.

Housing had become a “speculation” rather than a home in New Zealand, the report said, also noting the lack of social and affordable housing and inadequate protections for tenants — and Professor Leishman said Australia was no better.

“I think we’re directly at the point of a [housing-related] human rights crisis in Australia,” he said. “Australia has signed onto agreements for housing as a human right and the UN admonishes Australia [for it] as it has completely failed to ensure housing is available for everyone.”

The AHURI research, undertaken with academics from Curtin University, the University of Glasgow and University of Adelaide, suggested having larger cities, or more satellite cities, where young people could afford to buy or rent, that were directly connected to capital cities where they could work.

Productivity growth was directly linked to a younger worker’s ability to stay in roles and be promoted and paid more, Professor Leishman said.

“Older people who are experienced workers [and more able to afford to live in the inner city], their individual productivity is already quite high, but their ability to grow productivity is low,” he said.

“Productivity growth is high in younger people and [higher house prices] displaces younger people and takes them away from innovation and jobs,” he said.

While many people had fled cities to regional areas during the coronavirus pandemic, it was yet to be seen whether this shift from the capitals would have an impact on city productivity, Professor Leishman said.

“I think the jury is out on what will happen,” he said. “We are seeing people move to regional areas and working from home more but we are also seeing company’s clamping down on that and requiring people to be in the office.

“People working from home are working longer hours but aren’t really being more productive.”

Professor Leishman said state and federal governments had a big role to play in ensuring the economic productivity of the capital cities kept growing.

“Failure to manage the diseconomies of large cities, that is the high housing costs and long commute times, will reduce productivity and redistribute income and wealth away from the productive sector of the economy.”