Australia's house prices have risen by 10 per cent in the year to April 2021 and are forecasted to continue to increase further.
The Reserve Bank of Australia (RBA) and a Royal Commission should address the effect of soaring house prices on productivity and economic stability, according to a landmark new report.
It also finds all levels of government must collaborate to expand housing supply and the infrastructure needed to support it.
The UNSW report to the Housing and Productivity Research Consortium, titled 'Housing: Taming the Elephant in the Economy' interviewed a panel of 87 experts and undertook an extensive review of national and international literature.
The study noted that national household debt has more than doubled, from 70 per cent of GDP in 1990 to almost 185 per cent in 2020, exposing a ticking economic time bomb should interest rates rise in future.
The report's lead author, Prof Duncan Maclennan, said the review confirms Australia's housing system is not working for the economy and an immediate overhaul is needed.
"Australia's approach to housing policy has fueled income and wealth inequality and created significant economic instability. This is a huge drag on productivity and warps Australia's capital investment patterns," Professor Maclennan said.
Australia's approach to housing policy has fueled income and wealth inequality and created significant economic instability.Prof Duncan Maclennan
"The recent explosion in house prices brings a fresh and troubling dynamic. Rampant price growth has returned to the larger cities and is now spreading to regional Australia. This is in part due to the pandemic-fueled work-from-home revolution but is also because so many younger Australians can no longer afford the life they want as homeowners in the larger cities.
"The responsibilities of the RBA need to be expanded to include maintaining a more stable, rational housing market.
"The Commonwealth is right to highlight sluggish housing supply but wrong to assume that State and local planning is the cause. Shortages of infrastructure, skilled labour and raw materials all matter too. States do need to audit housing supply chains and bring their powers to make them faster and more flexible. But short political time horizons and cross-border and cross-sector blame games will not help younger and poorer Australians.
Housing economist Saul Eslake said: "Media coverage is rightly sounding the alarm at booming prices that are locking young people out of the market. But this is far from a short term or cyclical issue. It's a structural problem that's been building for decades. It's one that won't be solved by policy initiatives that just tinker around the edges.
"It's been more than amply demonstrated that what governments need to do is step back from policies which serve mainly, or only, to inflate the demand for housing, and step up to pursue policies which expand the supply of it."
Everybody's Home national spokesperson Kate Colvin said: "Surging property prices have left some wealthier and older Australians better off but younger and poorer Australians are much worse off. It's time to shine a light on the fundamental flaws in our nation's housing policies and create a concrete plan of solutions that work to address growing housing inequity, like building more social and affordable housing."