The global housing market is broken, and it's dividing entire countries

New York

SOARING property prices are forcing people all over the world to abandon all hope of owning a home. The fallout is shaking governments of all political persuasions.

It's a phenomenon given wings by the pandemic. And it's not just buyers - rents are also soaring in many cities.

The upshot is the perennial issue of housing costs has become one of acute housing inequality, and an entire generation is at risk of being left behind.

"We're witnessing sections of society being shut out of parts of our city because they can no longer afford apartments," Berlin Mayor Michael Mueller says. "That's the case in London, in Paris, in Rome, and now unfortunately increasingly in Berlin."

That exclusion is rapidly making housing a new fault line in politics, one with unpredictable repercussions. The leader of Germany's Ver.di union called rent the 21st century equivalent of the bread price, the historic trigger for social unrest.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Politicians are throwing all sorts of ideas at the problem, from rent caps to special taxes on landlords, nationalising private property, or turning vacant offices into housing.

Nowhere is there evidence of an easy or sustainable fix. In South Korea, President Moon Jae In's party took a drubbing in mayoral elections this year after failing to tackle a 90 per cent rise in the average price of an apartment in Seoul since he took office in May 2017.

The leading opposition candidate for next year's presidential vote has warned of a potential housing market collapse as interest rates rise.

China has stepped up restrictions on the real-estate sector this year and speculation is mounting of a property tax to bring down prices.

The cost of an apartment in Shenzhen, China's answer to Silicon Valley, was equal to 43.5 times a resident's average salary as of July, a disparity that helps explain President Xi Jinping's drive for "common prosperity".

In Canada, Prime Minister Justin Trudeau has promised a two-year ban on foreign buyers if re-elected.

The pandemic has stoked the global housing market to fresh records over the past 18 months through a confluence of ultra-low interest rates, a dearth of house production, shifts in family spending, and fewer homes being put up for sale.

While that's a boon for existing owners, prospective buyers are finding it ever harder to gain entry.

What we're witnessing is "a major event that should not be shrugged off or ignored," Don Layton, the former CEO of US mortgage giant Freddie Mac, wrote in a commentary for the Joint Centre for Housing Studies of Harvard University.

In the US, where nominal home prices are more than 30 per cent above their previous peaks in the mid-2000s, government policies aimed at improving affordability and promoting home ownership risk stoking prices, leaving first-time buyers further adrift, Mr Layton said.

The result, in America as elsewhere, is a widening generational gap between Baby Boomers, who are statistically more likely to own a home, and Millennials and Gen Z - who are watching their dreams of buying one go up in smoke.

Existing housing debt may be sowing the seeds of the next economic crunch if borrowing costs start to rise. Niraj Shah of Bloomberg Economics compiled a dashboard of countries most at threat of a real-estate bubble, and says risk gauges are "flashing warnings" at an intensity not seen since the run-up to the 2008 financial crisis.

In the search for solutions, governments must try and avoid penalising either renters or homeowners. It's an unenviable task.

Sweden's government collapsed in June after it proposed changes that would have abandoned traditional controls and allowed more rents to be set by the market.

In Berlin, an attempt to tame rent increases was overturned by a court. Campaigners have collected enough signatures to force a referendum on seizing property from large private landlords. The motion goes to a vote on Sept 26.

The city government on Friday announced it'd buy nearly 15,000 apartments from two large corporate landlords for 2.46 billion euros (S$3.91 billion) to expand supply.

Anthony Breach at the Centre for Cities think tank has even made the case for a link between housing and Britain's 2016 vote to quit the European Union. Housing inequality, he concluded, is "scrambling our politics". As these stories from around the world show, that's a recipe for upheaval.

Australia

As the son of first-generation migrants from Romania, Alex Fagarasan should be living the Australian dream. Instead, he's questioning his long-term prospects.

Mr Fagarasan, a 28-year-old junior doctor at a major metropolitan hospital, would prefer to stay in Melbourne, close to his parents. But he's being priced out of his city. He's now facing the reality that he'll have to move to a regional town to get a foothold in the property market. Then, all going well, in another eight years he'll be a specialist and able to buy a house in Melbourne. Even so, he knows he's one of the lucky ones.

His friends who aren't doctors "have no chance" of ever owning a home. "My generation will be the first one in Australia that will be renting for the rest of their lives," he says.

He currently rents a modern two-bedroom townhouse with two others in the inner suburb of Northcote - a study nook has been turned into a make-shift bedroom to keep down costs.

About 30 per cent of his salary is spent on rent; he calls it "exorbitant"'. Prime Minister Scott Morrison's conservative government announced a "comprehensive housing affordability plan" as part of the 2017-2018 budget, including A$1 billion (S$1 billion) to boost supply. It hasn't tamed prices.

The opposition Labour Party hasn't fared much better. It proposed closing a lucrative tax loophole for residential investment at the last election in 2019, a policy that would likely have brought down home prices. But it sparked an exodus back to the ruling Liberals of voters who owned their home, and probably contributed to Labor's election loss.

The political lessons have been learned: Mr Fagarasan doesn't see much help on housing coming from whoever wins next year's federal election. After all, Labor already rules the state of Victoria whose capital is Melbourne. "I feel like neither of the main parties represents the voice of the younger generation," he says.

Canada

Days after calling an election, Justin Trudeau announced plans for a two-year ban on foreigners buying houses. If it was meant as a dramatic intervention to blind-side his rivals, it failed: they broadly agree.

The prime minister thought he was going to fight the Sept 20 vote on the back of his handling of the pandemic, but instead housing costs are a dominant theme for all parties.

Mr Trudeau's Liberals are promising a review of "escalating" prices in markets including Vancouver and Toronto to clamp down on speculation. Conservative challenger Erin O'Toole pledges to build a million homes in three years to tackle the "housing crisis". New Democratic Party leader Jagmeet Singh wants a 20 per cent tax on foreign buyers to combat a crisis he calls "out of hand."

Facing a surprisingly tight race, Mr Trudeau needs to attract young urban voters if he is to have any chance of regaining his majority.

He chose Hamilton, outside Toronto, to launch his housing policy. Once considered an affordable place in the Greater Toronto Area, it's faced rising pressure as people leave Canada's biggest city in search of cheaper homes.

The average single family home cost C$932,700 (S$985,950) in June, a 30 per cent increase from a year earlier, according to the Realtors Association of Hamilton and Burlington.

The City of Hamilton cites housing affordability among its priorities for the federal election, but that's little comfort to Sarah Wardroper, a 32-year-old single mother of two young girls, who works part time and rents in the downtown east side.

Hamilton, she says, represents "one of the worst housing crises in Canada." While she applauds promises to make it harder for foreigners to buy investment properties she's sceptical of measures that might discourage homeowners from renting out their properties. That includes Mr Trudeau's bid to tax those who sell within 12 months of a house purchase.

Neither is she convinced by plans for more affordable housing, seeing them as worthy but essentially a short-term fix when the real issue is "the economy is just so out of control the cost of living in general has skyrocketed".

Ms Wardroper says her traditionally lower-income community has become a luxury Toronto neighbourhood. "I want to build a future for my kids. I want them to be able to buy homes, but the way things are going right now, I don't think that's going to be possible."

Singapore

Back in 2011, a public uproar over the city-state's surging home prices contributed to what was at the time the ruling party's worst parliamentary election result in more than five decades in power.

While the People's Action Party retained the vast majority of the seats in parliament, it was a wake-up call - and there are signs the pressure is building again.

Private home prices have risen the most in two years, and in the first half of 2021, buyers including ultra-rich foreigners splurged S$32.9 billion, according to Singapore-based ERA Realty Network. That's double the amount recorded in Manhattan over the same period.

However, close to 80 per cent of Singapore's citizens live in public housing, which the government has long promoted as an asset they can sell to move up in life.

It's a model that has attracted attention from countries including China, but one that is under pressure amid a frenzy in the resale market.

Singapore's government-built homes bear little resemblance to low-income urban concentrations elsewhere. In the first five months of the year, a record 87 public apartments were resold for at least S$1 million. That's stirring concerns about affordability even among the relatively affluent.

Junior banker Alex Ting, 25, is forgoing newly built public housing as it typically means a three-to-four-year wait. And under government rules for singles, Mr Ting can only buy a public apartment when he turns 35 anyway.

His dream home is a resale flat near his parents. But even there a mismatch between supply and demand could push his dream out of reach.

While the government has imposed curbs on second-home owners and foreign buyers, younger people like Mr Ting have grown resigned to the limits of what can be done.

Most Singaporeans aspire to own their own property, and the housing scarcity and surge in prices presents another hurdle to them realising their goal, says Nydia Ngiow, Singapore-based senior director at BowerGroupAsia, a strategic policy advisory firm. If unaddressed, that challenge "may in turn build long-term resentment towards the ruling party", she warns.

Younger voters may express their discontent by moving away from the PAP, according to Mr Ting. "In Singapore, the only form of protest we can do is to vote for the opposition," he says. BLOOMBERG

READ MORE: Prime HDB flats: Accept the lottery effect