Housing costs account for much of Australia’s cost-of-living crisis, and affordability will not improve unless governments increase housing supply where people need to live, including through greater urban density.

The cost of living is by far today’s number one political issue. However, housing affordability is also important, and the two issues are closely related.

Nationally, more than a quarter (26 per cent) of Australian households spend over 30 per cent of their disposable income on housing, placing them in financial stress. Mortgage holders are the most affected, with nearly 45 per cent spending more than the 30 per cent of their disposable income to cover their housing costs. While about 28 per cent of renting households are above the 30 per cent stress threshold.

Furthermore, mortgagees and renters together account for around two thirds of all households, or about a third each, and that is why more than a quarter of all households are experiencing housing stress.

Thus, if we are worried about the cost of living, by far the most important issue to confront is the cost of housing.

The fundamental problem is not the recent rise in interest rates. It is that housing prices have risen much faster than incomes, especially in the last two decades or so.

According to research by the Grattan Institute, average dwelling prices represented around 2-3 times average disposable incomes in the 1980s and early-1990s. By comparison, today the national median dwelling price is approximately 8.2 times the median, or typical, annual income. While in Sydney – one of the most unaffordable housing markets globally – the median house price-to-income ratio is 13.8.

The conclusion is therefore that if we want to bring down the cost of living we need to make housing more affordable and that means reducing the price of housing. But the best way to do that must be based on a........

© Pearls and Irritations