Man's blistering two word description of housing market

One of Australia's top economists has described housing in Australia as a 'misery machine' and a 'terrible experiment' gone wrong. 

The typical, middle-market house in Sydney, Melbourne and Brisbane is now beyond the reach of an average, full-time earner and even those on a low, six-figure salary.

Economist Chris Richardson told ABC's Q&A program house prices were reaching record highs, despite the Reserve Bank's 13 interest rate rises in 18 months, because of rapid population growth.

'Across 40 years, we have turned housing into a misery machine in Australia and this is a stunning national fail,' he said on Monday night.

'We had a terrible experiment over the past year with interest rates roaring up and yet house prices went up.'

Mr Richardson, who has previously worked at Treasury and the International Monetary Fund, said the answer to unaffordable housing was to reduce immigration and allow more high-rise unit developments instead of raising interest rates in a bid to slow demand.

'I used to think interest rates would do the trick. They won't. We have to build,' he said.

'How do we build? We need the builders but what we need more than anything else - for 40 years, we had not in my backyard, council by council, by council decision, neighbourhood by neighbourhood, and after 40 years, we haven't built and when we do build, we attach all these conditions which make it incredibly expensive.

'I would love not to touch migration but we have screwed this up so massively as a nation that we temporarily, need to look at migration as part of this equation.'

During the last financial year, only 168,231 private homes were built, with 27,213 finished in June 2023, an 11 per cent drop from 30,685 in March 2022, Australian Bureau of Statistics figures showed.

With an average of 2.5 people per home in Australia, the 420,578 people they would theoretically house was well below the annual population increase of 563,200 in March, covering both net overseas migration and births minus deaths.

More than 400,000 migrants, on a net basis, are arriving in Australia in a year, with economist expecting it to surpass the 500,000 mark in late 2023 - setting a new annual record.

Rather than cut immigration back to more manageable levels, Prime Minister Anthony Albanese in August announced a plan for Australia to build 1.2million 'new well-located homes' over five years, starting on July 1, 2024.

The target was set by the National Cabinet of mainly Labor premiers, putting pressure on states to change planning laws that give local councils the power to stop high-rise apartment developments at the behest of existing homeowners.

The closest Australia came over a five-year period was building 1.05million homes between 2015 and 2020, but Chinese capital in residential unit developments has since evaporated.

Sydney's median house price has surged by 12.1 per cent since January to $1.397million, CoreLogic data for October showed.

This was despite the Reserve Bank hiking rates at the most dramatic pace since 1989 to combat high inflation.

A borrower with a 20 per cent deposit and a $1.118million mortgage would need to earn $186,251 to avoid being in mortgage stress, where they owed the bank more than six times their salary. 

The cash rate is now at a 12-year high of 4.35 per cent, following the latest November increase, leading to variable mortgage rates creeping closer to 7 per cent. 

Renters are also having a difficult time with the national rental vacancy rate at just one per cent in October, SQM Research figures showed.

House tenants in Melbourne and Perth have seen their weekly rent soar by 19 per cent during the past year, as an influx of international students and skilled migrants compete for rental properties.

Mr Richardson suggested cutting the international student intake to alleviate the housing shortage, which is particularly pronounced in Sydney.

'We have now 725,000 students from the rest of the world studying in Australia - a year ago, that was 555,000,' he said.

'We sell education to the world and a lot of that we do well and some of it we don't do as well, but it is a big part of the increase in the pressure at the moment and it is a relatively concentrated bit where we can make a change.'