Australia’s Housing Prices: The Bubble could lead to the End of the Australian Dream

Many Australians dream of being able to buy their own houses, but the rising cost of property coupled with increasing high standards of living makes nearly impossible for many.

An unreachable dream

The rising property bubble severely affects the younger generation who cannot yet sustain their lifestyle amidst looming property prices. Traditionally, young Australians will find a partner to settle down with and build their family in their own homes. However, actually owning a home is no longer reachable for some not only due to the high prices of property but also for the steadily increasing mortgage and loans.

HouseAn increase in borrowings means that the younger generation, who are still trying to set a foothold on the world, will have increasing difficulty in actually paying off their mortgage. This is further confounded by the rising standard of living in the country; particularly in large cities such as Sydney and Melbourne. Middle income home owners are not safe from this danger as prices increase, so is the difficulty in actually sustaining themselves and their growing family.

When lending fails

The increase in housing cost can eventually cause too much lending to the residential housing sector, with the RBA noting that lending had surged to almost 150% in the last three years. This is bad for business and will eventually cause banks to move money away from them, which ultimately leads to bad growth, shoddy competition, and negatively affect jobs.

Properties within larger cities like Sydney are most affected by the increasing bubble. On the other hand, properties in the rural and suburban areas are not so much affected. Unfortunately, many Australians hold a particular aversion to buying suburban homes mostly due to how far it is from major cities where they may go to work. This means that people who have homes in the suburbs would have to travel considerable distances just to get to work, and many note that this is something they can no longer afford to do.

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Placing the blame

Many claim that foreign investors, particularly the Chinese, are partly to blame for Australia’s increasing housing prices. Pete Wargent, co-founder of Allen Wargent Property Buyers notes that Asian Investment is affecting the country’s real estate mostly by developers who pay prices in excess of the fair market value, which in turn drives the prices higher.

In response, Prime Minister Tony Abbot says that the government proposes to create penalties and fees for foreign investors. With this proposal, foreign investors will have to pay a A$ 5,000 to A$100,000 application fee if they wish to purchase property worth A$ 1 million and above.

The Australian government hopes that this will ‘level the playing field’ and allow the younger generation and middle income owners the ability to purchase homes at prices they can actually afford.