'Governments can’t solve housing affordability', economist says

Australian families should not be given the impression governments can make housing in Australia significantly cheaper, respected economist Chris Richardson says.

Deloitte Access Economics Director Chris Richardson delivers his address at the National Press Club in Canberra (AAP)

Deloitte Access Economics Director Chris Richardson delivers his address at the National Press Club in Canberra (AAP) Source: AAP

Deloitte Access Economics Director Chris Richardson has urged the federal government to better pursue economic reform during a pre-Budget address at the National Press Club in Canberra.

He says it is vital to make sure the public understands major reform is needed.

“Canberra is absolutely struggling to get the message across that reform brings benefits,” he told reporters.

But while he is urging the government to better set up Australia for the future, he admits it has very little power to curb sky high house prices in Sydney and Melbourne.

“The reason why housing affordability is rotten is because interest rates have never been this low before.

“The average Australian should not make the mistake of thinking that this is something that governments can solve."

Watch: Turnbull on Australia's relationship to China's economy

The Turnbull government is planning a housing affordability package in next month’s budget.

One idea being floated is to allow young people to dip into their superannuation for a deposit, but Mr Richardson warned against it.

“That would be adding extra money into a market that's already pretty heated,” he said.

His advice to young Australians is not to buy in the current market.

"Let’s not forget that rents today make a lot more sense than housing prices today."

Opinion within the coalition on the superannuation proposal is divided.

Resources Minister Matt Canavan is urging his colleagues to at least consider the proposal.

“It's been used in other countries and it's something we should certainly consider," Minister Canavan told ABC Radio.

WATCH: Should super be used for home deposits?

Deloitte Access Economics believes house prices in Australia are currently overvalued by around 30 per cent.

Mr Richardson says the dangerously inflated house prices mean Australia would not be able to avoid a recession in the event of a stumble in the Chinese market.

Australia is set to achieve the longest recorded run without a recession in the world within the next three months, but he believes its reliance on China increases its vulnerability.

“Australia's gains from China have been immense and they'll continue over time to be immense, but those gains have meant that our increasing reliance on China has also become huge," he said.

WATCH: Economist slams Super housing plans

“We now have more eggs in the China basket than Australia's had with any nation since the UK in the early 1950s.”

While Australia emerged relatively unscathed from the global financial crisis 10 years ago, he warns that its economic defences are much weaker today.

Interest rates are already at record lows and the budget is in the red.

“We've used a lot of our ammo already.”

Prime Minister Malcolm Turnbull admits a serious setback in the Chinese economy would have a global impact, including in Australia.

“But having said that there’s no reason to forecast that. Chinese growth has remained strong and stronger frankly than many economists predicted a few years ago,” he told reporters in Mumbai.

3 min read
Published 12 April 2017 at 11:40am
By Marija Jovanovic