It’s human nature to blame someone else when something seems financially out of reach, particularly when it comes to affording a home.

However it is important to understand that all asset prices, and especially property, are driven by three factors:

1. Living standards

2. Supply and demand

3. Population growth

In Australia, we have relatively high living standards and a growing population who must live somewhere.

We also have limited supply and certainly can’t make more land.

It’s been said that the best investment on earth is earth and hence our natural desire to want a roof over our heads and to accumulate property, which usually doesn’t experience the volatile movements found in the share market. 

The poor, but ageing, baby boomers have taken a battering for pushing up property prices, but through their sheer numbers and prosperity they have helped reduce the costs of travel, food, cars, electronics, consumables and much more.

The other “culprit” is negative gearing but this ignores the benefits to the economy that come from the payment of stamp duty, GST, land tax and employment when property investment increases.

When we consider increased living standards, these are driven by wage growth and increased productivity, so a natural result is higher disposable income as well as the desire to live closer to work and lifestyle opportunities.

Australia’s property market is impacted by limited supply because we can’t build more land.

There are also significant restrictions on developers as well as the Not In My Back Yard (NIMBY) mindset which sometimes prevents projects from being constructed where they will be needed in the not-too-distant future.

In Australia, we have concentrated living zones where the majority of the population wants to live near the CBDs of our major capital cities.

But there is limited expenditure by government to expand these zones by spending on improved transportation, particularly roads and rail. 

In fact, many areas are effectively land-locked and there is an aversion to live in regional centres primarily due to job opportunities, infrastructure and lifestyle factors.

It’s also important to consider that a large proportion of a property’s price is due to government charges including GST, council contributions, council open space charges, fire and safety imposts, energy efficiency designs dictated by government and open space ratios as well as maximum land utilisation ratios.

Governments tend to make developers pay for many expenditures, which ratepayers should be responsible for, so there are many one-off costs added to a new build which eventually feeds its way into all property.

The Australian culture is one of home ownership and not one of renting, but until very recently this wasn’t backed up by a healthy saving strategy – in fact, our proportion of saving is relatively low compared to many other countries.

The government banking system policy has limited competition and therefore has increased costs, which are usually borne by consumers who are trying to save at the same time.

Our property market is also characterised by minimal housing turnover and empirically this is partly due to the high costs of changeover such as stamp duty, complicated conveyancing requirements, government rules for either auctions or private treaty sales.

All of these factors add costs to the moving equation, so many homeowners choose to stay or improve their current property instead.

The disproportionate rate of stamp duty growth over recent years – which favourably for the government increases in-line with property prices – means as the government’s coffers rapidly fill up, it becomes more difficult for homeowners to upgrade or for first homebuyers to even make a start.

Governments have also done little to encourage decentralisation, which has reduced the number of people who consider moving to more affordable regional areas due to lifestyle and infrastructure considerations.

So who is responsible for Australia’s high property prices?

There are a number of factors currently impacting our market, but there are also a number of opportunities to address the major issues – if governments actually wanted to do so.

Almost at a stroke of the pen, if our governments allowed more concentrated living zones, less bureaucracy, improved transport and infrastructure spending on schools and public amenities, new land releases with transport, increased banking competition and less punitive penalties on savings we would see increased supply and therefore lower pressures on prices.