A house divided

The debate around Australia’s housing market has reached a slightly ridiculous point this week, with noted house price bear, economist Steve Keen, walking more than 200 kilometres to the top of Mount Kosciusko after losing a bet with another economist.

Keen’s pilgrimage (which is being entertainingly documented by Business Spectator‘s Rob Burgess in a daily blog) came after he boldly predicted housing prices would crash last year, and was wrong.

But Keen refuses to back down on his crash predictions and double digit annual growth in house prices has sparked some concern that we could be headed for something of a bubble.

That sentiment was echoed by the International Monetary Fund, which released a report expressing fears that we could be at risk of a housing bubble.

While the IMF found ”no evidence of systematic bubbles” in the near-term, it was concerned that prices were at elevated levels compared to incomes or rents.

“As typically happens in housing bubbles, many purchasers may have been buying in the expectation of price appreciation, rather than simply for dwelling purposes,” the report said.

Bubble or not, the level of housing prices does appear to be already creating some big social issues that Australia will have to face.

A survey released this morning by Bankwest and the Mortgage and Finance Association shows more than half of the Gen Ys surveyed said they are shelving their plans for buying a home because of how much debt they would need to carry to afford a property.

More than 70% of Gen Ys are now concerned about the amount of debt they will have to take on to buy a house and 25% are looking to live at home to save up for a deposit.

Gen Ys might have over-reacted a little to the recent appreciation in prices, but this survey does hint at a big trend – a large group of Australians feel they are unlikely to own their own home.

That represents a big shift in the psyche of the Australian community and will create real challenges and opportunities, not the least of which is a societal divide between those that can own property and a growing group who cannot.

How will those who cannot buy a house react? Will they see themselves as disadvantaged have-nots, or canny investors who pour their savings into other investments while taking advantage of rental markets?

And what about the more practical questions?

Do we need to rethink the sort of accommodation we focus on providing? Does it mean more rentals and apartments, and fewer large houses? Or does it mean even larger houses, providing shelter for multiple generations of a family?

We might not have a housing bubble, but it appears we have a housing conundrum looming very quickly.