What happened to the Great Australian Dream? Home truths on the housing debate.

By Ben Knight and Ruth Fogarty

Australia’s obsession with real estate is practically a national sport, with spectators watching auctions as keenly as any footy game.

But in Melbourne and Sydney, some first homebuyers are faced with difficult choices: vast mortgages, vulnerable to interest rates rising; the prospect of moving to the city’s fringes, or even moving back home.

Tougher still is the realisation that they are competing with experienced investors equipped with tax breaks and negative gearing.

Now as the housing market begins to slow down, predictions of a crash are beginning to emerge. For the younger generation, that’s exactly what they’re banking on.

Here are a few different perspectives on the current housing debate:

Jules McKendry: The first homebuyer

Jules McKendry and her partner have spent every weekend for a year trying to buy their first home.

At just 25, Ms McKendry has managed to save $150,000 towards a deposit, but she is feeling ripped off.

She has bid and lost on many properties around Melbourne, but her competition is not other homebuyers — it’s investors.

For Ms McKendry, a collapse in the property market cannot come soon enough.

“If the prices keep doing what they are doing it now, there’s no way my kids will ever own a house,” she said.

“To them it will be normal, because no-one will own houses.”

Millie, Ben and Daisy Robson: The young family

Millie, her husband Ben and their young daughter Daisy have moved back home with Millie’s parents — and all three of them share the room she slept in as a teenager.

Ms Robson’s parents, Gerry and Libby, also have their three sons living at home — but this family is lucky enough to get along.

The couple say they are unable save up for a deposit to buy their own home and pay rent at the same time, so they have decided to sit tight, keep saving and wait for the tide to change.

“We’ll just try and put away as much money as we can and see where we’re at when this bubble bursts,” Ms Robson said.

Ken Morrison: Chief executive of the Property Council of Australia

Ken Morrison of The Property Council agrees there is a housing affordability problem, but believes undersupply and an increasing population is the root cause.

“The big factor pushing up prices has been the chronic undersupply of housing … and the failure of that supply pipeline to match our growing cities and our growing population,” he said.

The council believes a thriving housing industry makes for a thriving economy, and is a big supporter of negative gearing.

It recently launched its own campaign against Labor’s suggested policy changes, which proposed that negative gearing should only be available on newly-constructed homes.

Catherine Cashmore: President of Prosper Australia

Buyer’s advocate Catherine Cashmore has amassed some unusual data which she believes is proof there is a massive oversupply of vacant properties in and around metropolitan Melbourne.

She analysed records from Melbourne’s water authorities to see how much usage there was per day and discovered around 80,000 properties where water usage was minimal.

But because they are not advertised, these empty dwellings never appear on the rental market.

“It’s clear that people are buying them and they are not interested in renting them out,” she said.

Amy Reynolds: Strategist at Apt Capital Management

Amy Reynolds is a hedge fund manager with a Singapore-based capital fund, who believe that, based on global housing market indicators, property in Australia is massively overvalued – by as much as 40 per cent.

“Our feeling is that there’s definitely been a property bubble developing in Australia,” she said.

They found a crash in their analysis that a bubble was coming because financial institutions were too exposed to the mortgage market, and her firm has bet against a number of major Australian banks.

The gulf between house prices and the average income is a crucial indicator.

In Sydney, the price to income ratio is currently 12.2 times the median salary. In Melbourne, it is almost 10.

Prior to the collapse of the US housing market, that figure was only five.

John Daley: Grattan Institute

John Daley from the Grattan Institute paints a bleak picture for Millennials, saying the widening gap between house prices and the average income is locking Generations X and Y out of the housing market — and negative gearing is part of the problem.

“About 60 per cent [of 25 to 34-year-olds used to] own a house. Now it’s less than half,” he said.

Ahead of the upcoming budget, the Government announced there would be no changes to their existing policy on negative gearing.

In defence of the policy, Scott Morrison said most Australians who benefit from the concession earn less than $80,000 after tax per year.

But a recent report by the Grattan Institute — Hot property: negative gearing and capital gains tax — states that negative gearing benefits the top 10 per cent of income earners.

The report points out that in combination with capital gains tax, these concessions benefit property investors, negatively impact housing affordability and disadvantage first home buyers.

The report proposes a 50-25 per cent reduction in the capital gains discount, and a limit on the losses investors can claim.

In a blog post, the Prime Minister hit back at the Institute’s analysis, saying it was “littered with factually incorrect statements”.

In a detailed response in the AFR, Mr Daley argued against Mr Turnbull’s comments, saying other countries that do not permit negative gearing continue to “have functional rental markets”.

Watch Home Truths on Four Corners tonight at 8:30pm on ABC TV.

This post originally appeared on ABC News.