Who’s to blame for Australia’s exploding property prices and housing affordability crisis?

There has been much more demand than supply for a long time, and until the two reach more of an equilibrium, property values will continue to grow, and affordability will worsen.

Mr Oliver said while the demand and supply imbalance is mostly to blame for the deterioration in housing affordability, low interest rates are also a major factor alongside it.

He said low rates play a significant role in prices rises over the past few years and are also one of the catalysts for the decline in housing affordability that started in the late 1990s.

“It meant people could borrow more and therefore pay more for houses, and as we went into the 2000s housing started to become more and more expensive and less and less affordable,” Mr Oliver said.

“But we also saw a lack of supply relative to demand at that time. It wasn’t that we were building less houses, but we were building less houses than we needed for the surge in immigration that occurred through the mining boom in the 2000s.

“Something got out of whack in the 2000s when we massively increased the immigration intake but didn’t increase the supply of housing to match."

While interest rates have also played a big role in housing affordability, the RBA isn’t to blame for rising house prices either, PropTrack Economist Angus Moore said.

“While it’s unequivocally true that lower interest rates have raised house prices and made it harder for first-home buyers, it’s not the RBA’s role to make housing affordable,” Mr Moore said.

“Its job is to make sure inflation is in the target band and keeping unemployment low, which is an important part of getting into the housing market. It’s very hard to get a mortgage without a job.”

Mr Oliver pointed out that many countries around the world have low interest rates, but not all have had housing as expensive as Australia, demonstrating that the biggest issue is a lack of supply relative to demand.

“In the US and Europe, the price-to-income ratio has gone up, but while it might be three or four times, it’s not like Australia at seven,” he said.

“Ultimately it comes down to supply and demand, and unless you calibrate those two in a better way, we’ll have a going problem with housing affordability.”

Real Estate Institute of Australia president Hayden Groves added that there is a social impetus behind the more rapid affordability decline over the past few years during the pandemic.

People wanted a nicer dwelling as lockdowns forced them to be at home more, and they aspirationally invested in an environment where money was as cheap as it ever has been, Mr Groves said.

Most of the growth then occurred in houses as opposed to units, he said, with demand outstripping supply.

Who is to blame for the lack of supply?

With a chronic undersupply relative to a growing population being the biggest issue for housing affordability, a significant portion of the blame can be put on governments.

State governments need to release more land for development, and faster, while local governments need to speed up their development approval processes, Mr Oliver said.

Meanwhile, the federal government controls immigration levels and tax policy, so things can also be done on that front to ease demand.

Property Council of Australia chief Executive Ken Morrison said since the 1990s there has been a massive escalation in the complexity of planning, with the shifting of infrastructure charges onto developers.

“We’ve also seen a dire lack of forward planning in the zoning of land and renewal areas for denser housing,” Mr Morrison said.

“The picture is slightly different in every state and territory and local government area, but there is a clear need for Australia to get better at bringing new housing supply onto the market.”

Mr Morrison said there is a stark difference in affordability between Sydney and Melbourne, which is due to supply and how the planning system is run, rather than the geographical constraints of land availability.

“The New South Wales planning system is a long way from best practice,” he said.

“The Victorian planning system is certainly not perfect, but over a long period of time the state has done a better job of managing the planning system to be in line with growth.

“It’s about forward planning and ensuring plans on the ground match the housing targets that are set, having efficient processes, and ensuring you are not loading up too many costs onto new housing construction because at the end of the day the purchaser just pays for it.”