Solution to housing affordability crisis potentially another generation away

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00:00The story of the housing affordability crisis is repeated across the country and also inside

00:07families. Let's compare two parents buying a house back in 2001 with their son and his

00:13partner trying to buy today. Each pair have typical jobs and earn typical incomes for

00:19their era. Each pair has been saving steadily for six years and in today's dollars the kids

00:24are way ahead and yet the parents have enough to get a typical three bedroom home in the

00:29suburbs but their kids are still four years away from getting there. The social contract

00:35where a middle class job yields a middle class home has been left at the bottom of a house

00:40price mountain. Back in 2001 the average house price was four times the yearly income for an

00:47average household. Let's call that the bottom of the mountain. In the years since incomes

00:53have doubled but house prices have quintupled. View it this way and it's little wonder that

01:00housing has become the dominant economic anxiety for a generation that is now hungry for a solution.

01:06But what does a solution actually look like? Well suppose that we wanted to return things

01:11to the way they were. Pretty clearly you can't bring the house price mountain back down to the

01:17wages hill without taking the housing market off a cliff. And that would unleash chaos even if it

01:23were possible which let's be very clear it is not. Even these tiny blips that you see in the past were

01:29painful for many people who already had homes with a broader chilling effect on the economy.

01:34There's a reason why housing crashes are often associated with recessions. Maybe instead we could imagine

01:40more of a steady decline. Even so it would still take more than a decade to get back to the old level

01:47and property values would be falling that whole time. Something politicians are keen to avoid.

01:53Imagine instead that we could just keep house prices constant. It would take even longer to catch up

01:59all the way out to 2048. Or if we let house prices keep growing say at the rate of inflation there would be

02:07very little catching up at all for the foreseeable future. Of course targeting house prices is not

02:12something governments try to do or even could do. In reality they are shaped by interest rates,

02:17by migration and by all sorts of things that we can't foresee. So what's the point of all these lines?

02:23Well hopefully not to make us feel too helpless but as a reminder that all of our policy debates about

02:29housing today are only likely to change the housing story over the long term. A housing problem that took a

02:35generation to create could take a generation or more to fix unless our housing market makes a painfully sharp adjustment.