SYDNEY (BLOOMBERG) - Home ownership among young Australians has fallen to the lowest level on record, as an explosive property boom squeezes out all but the wealthiest.
Supercharged by record-low interest rates, a lack of supply and a tax system that favours property investors, home prices have surged more than 140 per cent in the past 15 years, propelling Sydney past London and New York to rank as the world's second-most expensive housing market.
Melbourne, ranked the world's most liveable city the past seven years by the Economist Intelligent Unit, is now the planet's sixth-most expensive place to buy a house.
Home ownership among the young has plunged: Only 45 per cent of 25-to-34 year-olds own their own home, down 16 percentage points from the 1980s, with almost half the decline coming in the past decade.
At the same time, hefty mortgages have pushed household debt to a record, acting as a drag on the economy's 26 years of unbroken growth. As more people retire still owing a mortgage, or renting, they are more likely to qualify for government welfare, undermining the A$2.3 trillion (S$2.5 trillion) pension savings system.
"The great Australian dream of home ownership is becoming a nightmare,'' said Mr Brendan Coates, a housing policy expert at the Grattan Institute. "It's down to a collective failure of government policy that will take at least two decades to fix."
Voter angst over housing affordability is mounting: Almost 90 per cent of Australians fear future generations would not be able to buy a home, according to an Australian National University survey.
Failure to address the issue is heaping pressure on a government already under fire for the botched roll-out of a A$49 billion national high-speed Internet network, and energy-policy bungling that has sent power bills soaring and triggered fears of blackouts this summer.
Among the biggest flashpoints are tax incentives that have turned housing into a speculative financial asset.
First-home buyers complain they cannot compete against investors, who, through a perk known as negative gearing, can claim the costs of owning a property-for-rent - including mortgage interest - as a tax deduction against other income.
The allure of property investment was turbocharged in 1999, when capital gains tax was halved. With housing prices seen as a one-way bet, investors piled in.
More than two million, or one in 12, Australians own an investment property, with almost 30 per cent of those owning two or more.
"More money going on servicing a mortgage means there is less to spend elsewhere, dragging on economic growth," said Mr Paul Dales, chief Australian economist at Capital Economics. "It won't take many rate rises for indicators to start flashing amber and red for more-indebted households."
As the average price of a Sydney home sailed past A$1 million, housing affordability fell victim to the hyper-partisanship that has gripped Canberra over the past decade and paralysed policy making.
During last year's election campaign, when the opposition Labor party proposed changes to limit negative gearing to newly-built houses and reduce the capital gains tax discount, Prime Minister Malcolm Turnbull retaliated by ruling out any changes and launched an assault claiming Labor's move would "take a sledgehammer" to the property market and "punish" mum and dad investors.
A package of measures in the May budget aimed at improving housing affordability only tinkered at the edges - targeting overseas investors who leave properties vacant and offering tax breaks for people saving for a deposit on their first home.
State governments have also done little to address the issue, relying on policies such as stamp duty discounts or grants to first-home buyers that just act to push prices up even further.
Meanwhile, politicians have offered only superficial solutions.
Former Treasurer Joe Hockey said buyers struggling to get into the market should simply "get a good job that pays good money".
Deputy Prime Minister Barnaby Joyce said people priced out of Sydney should have the "gumption" to move to rural areas such as Charleville in outback Queensland - where houses are about one-sixth the price of Sydney, but youth unemployment in the region is the highest in the nation.
"What politicians have offered so far are bandaid solutions that might be popular in the short-term but will be ineffective in the long-run" said Ms Judith Yates, who has advised the government on housing policy and is an honorary associate professor at the University of Sydney. "There hasn't been a serious attempt to tackle the fundamental causes of declining affordability."
In contrast, other global cities have taken more draconian measures to rein in home prices.
Singapore has rolled out a series of measures from banning interest-only loans to pushing up stamp duty, triggering a three-year slide in prices.
In Canada, prices have slumped in Toronto after the provincial government announced a slew of measures, including a 15 per cent tax on foreign buyers and the introduction of rent controls.
Adding to demand pressures, Australia's migration programme has helped swell the population by almost 4 million since 2006, with most settling in the major cities. Supply has been unable to keep up, with dwelling completions running below underlying demand for more than a decade. Much of the new housing is small apartments aimed at investors, rather than families.
There is also a social cost to sky-high house prices.
Workers such as teachers, nurses and other low-to-middle income earners cannot afford to live in the communities they serve, while young people who stay at home longer as they save a deposit might delay marriage and childbirth.
"It's a very different atmosphere in Australia," said Professor Richard Ronald of the University of Amsterdam's Centre for Urban Studies. "I haven't come across this kind of resistance elsewhere to the understanding of Generation Rent as a fundamental shift in history."