Government policies have increased demand for housing without tackling regulatory and tax barriers to new housing supply, according to a new report from The Centre for Independent Studies.
'Australia has enjoyed strong incomes, population growth and lower mortgage rates, and these, together with a critical lack of new housing supply, have fuelled long-term increases in real house prices,' says CIS Research Fellow Dr Stephen Kirchner, author of Eight Housing Affordability Myths.
'Foreign investors and domestic investors have been made scapegoats when it comes to housing affordability, but they are no more to blame for rising house prices than first-home buyers.'
'The problem is not too much demand, but too little supply.'
The supply of new land for housing has declined over the last decade, by an average of 21% for the five major capital cities (Sydney, Melbourne, Brisbane, Adelaide and Perth), which has pushed the price of land for new housing up by 148% to an average of $504 per square metre.
'Land supply and the intensity of land use need to be freed-up to accommodate rising demand,' says Dr Kirchner.
'State and local governments need to relax their planning, development and zoning controls so new housing construction becomes more responsive to rising prices.'
House prices have increased significantly since 1970, by an annual average rate of 3% after inflation, while homeownership has declined from 71% of households in 1995 to 67% in 2012, and more acutely for younger Australians buying their first home.
Dr Kirchner said there was no reason to think rising house prices constituted an asset price 'bubble.'
'The long-run trend in house prices is well-explained by economic fundamentals,' he said.
Dr Stephen Kirchner is a research fellow at The Centre for Independent Studies.He is available for comment.