Housing inaffordability could risk social cohesion

Housing affordability is becoming an increasing social risk as the rising price of housing makes it “essentially impossible” for lower-income Australians to get onto the property market, the co-founder of The Demographics Group, Simon Kuestenmacher, has said.

Speaking at the national conference for the Finance Brokers Association of Australia (FBAA) on Friday (11 March), the demographer and social commentator unpacked a range of statistics to showcase trends in the Australian housing market.

Mr Kuestenmacher told delegates that the make-up of the Australian workforce had shifted over the COVID-19 pandemic, inflating the proportion of Australians who were higher-income earners (skill level 1 and 2) and reducing the number of lower-paid earners (skill level 4 and 5).

This could have been an effect of some of the higher-paying professions being in particularly high demand over the pandemic (doctors, surgeons, engineers etc) and able to move online (for example, via telehealth appointments) while lower-paid workers and shift workers either lost their jobs or were furloughed/put on hold over the pandemic (cleaners, sales assistants etc).

“The further down the food chain you were, the more likely you were to actually lose your job. So that is a big double whammy. Once again, we are splitting social cohesion further apart in Australia. So this is very tragic from a social perspective,” he said, noting the reducing affordability of housing in Australia.

“Purchasing a home in a capital city on a skill-level 4 or 5 income is essentially impossible. Even if you put two of those incomes together maybe you can afford a humble abode at the very, very end of the urban fringe, but you need to get at least up to skill level three (electrician, butchers, mechanics etc) in order to have home ownership as a real, valuable option in your life. 

“So what does this mean if we have a U-shaped workforce instead of a bell curve workforce? Well, social cohesion is at risk.”

Mr Kuestenmacher emphasised that countries that have an “extreme U shape” in workforce skill levels (i.e. a high proportion of wealthy people and a high proportion of low-income people) generally see pent-up anger and frustrations bubble into civil unrest.

“Look at America. Look at Brazil, look at South Africa… Social cohesion in those places where the rich and the poor are extremely far apart (and where there is no glue of a middle class that holds those two together) is massively at risk,” he explained.

“So, there is a social issue here in Australia that I see emerging.”

Mr Kuestenmacher suggested that both state and federal governments had “noticed” this growing dichotomy between the “has and has nots” and were “investing into the right things” and “doubling down on infrastructure spending and construction itself, which creates middle class jobs at scale”.

However, despite this, he highlighted that Australia’s very low unemployment rate meant there were few people with the relevant skill set available to fill these positions and he was therefore “not all that optimistic about this being fixed in the near term”, particularly with wages growth being so low.

Given the fact that there was a shrinking middle-class market in Australia, he advised that mortgage brokers and advisers should be clear on “where along the wages pay scale you’re playing”.

“If you are blindly targeting the centre of the market, you are targeting a shrinking market. That’s not smart…. We regularly come across businesses that just focus on the centre and they wonder why business isn’t going well. You need to be clear where you play and you need to be realistic where you’re playing,” he said.

“We’re hollowing out Australia and things are getting much more tricky to get right here,” Mr Kuestenmacher concluded, suggesting that brokers would therefore be most in demand from higher-income borrowers seeking property investment advice, or lower-income earners seeking financial literacy advice to get “mortgage ready”.