By Dr. Majid Khan (Melbourne)
In recent years, Australia and New Zealand have witnessed a significant surge in the cost of living, exacerbated by rising housing prices, increased rent, and persistent inflation. These economic shifts have considerably strained younger generations, who are already facing unique challenges in an increasingly competitive job market. While both countries share many similarities in terms of their geographical proximity and cultural ties, their economic conditions and responses to the rising cost of living reflect different underlying factors and policy responses.
Housing crisis: A shared burden
One of the most pressing issues affecting the cost of living in both Australia and New Zealand is the skyrocketing price of housing. Over the past decade, housing prices in both countries have risen at an alarming rate, making homeownership increasingly out of reach for younger generations.
In Australia, the median house price has more than doubled in the past two decades, with some cities, like Sydney and Melbourne, seeing prices rise by as much as 200%. According to CoreLogic, the median house price in Sydney reached AUD 1.2 million in 2023, up from around AUD 600,000 in 2009. In New Zealand, the average house price has similarly surged, with prices increasing by over 100% since 2010. In 2023, the median house price in Auckland, New Zealand’s largest city, reached NZD 1.2 million, up from NZD 585,000 in 2009. These astronomical price increases are largely attributed to factors such as low interest rates, government incentives for first-time homebuyers, and an influx of foreign investment in both housing markets.
For younger generations in both countries, the dream of homeownership seems increasingly elusive. Many are forced to rent for longer periods, often in smaller, less desirable areas. This, in turn, contributes to a growing sense of financial instability and a diminished quality of life. With housing affordability at historic lows, the younger demographic is being pushed into a corner, with fewer opportunities to save for a deposit and more pressure to deal with ever-rising rent.
Inflation: The silent yet persistent challenge
Inflation has also played a crucial role in amplifying the rising cost of living in both Australia and New Zealand. In both countries, inflation has been above the target range set by central banks in recent years, driven by supply chain disruptions, labour shortages, and external economic pressures such as the COVID-19 pandemic and the ongoing war in Ukraine.
According to the Australian Bureau of Statistics, in Australia, inflation reached a 30-year high of 7.8% in 2022, driven by significant increases in food prices, energy costs, and housing. The Reserve Bank of Australia (RBA) has responded by raising interest rates to tame inflation, but the cost of living continues to outpace wage growth, putting a strain on households.
According to a Blomberg report, In New Zealand, inflation peaked at 7.3% in 2022, with a similar surge in food and fuel prices. Despite the Reserve Bank of New Zealand (RBNZ) implementing aggressive interest rate hikes to curb inflation, the rising cost of goods and services has left many young people struggling to make ends meet.
For younger generations, the impact of inflation is especially pronounced. Many young people are employed in industries that are less likely to see significant wage increases, such as retail, hospitality, and customer service. In contrast, the cost of basic necessities like groceries, healthcare, transportation, and utilities has surged, making it harder for younger individuals to stretch their income. As a result, many young people are forced to live paycheck to pay check, with little room to save for the future.
The burden of rent: A growing crisis for younger generations
Another key aspect of the rising cost of living that disproportionately impacts younger generations is the increasing cost of rent. Both Australia and New Zealand have seen rental prices soar in recent years, further exacerbating the financial burden on young people who are unable to afford homeownership.
In Australia, rental prices have skyrocketed in major cities, particularly in Sydney, Melbourne, and Brisbane. The average rent for a house in Sydney, for example, increased by 8% in 2022, while rent for apartments rose by 6%. In New Zealand, rental prices have similarly risen, particularly in high-demand areas like Auckland and Wellington. According to Statistics New Zealand, the average rent for a two-bedroom apartment in Auckland rose by 8.5% in 2022, and in Wellington, rent increased by 7%. These rising rental costs are putting additional strain on young people who are already struggling with the high cost of living.
The situation is especially dire for students and young professionals who are often forced to rent shared accommodations or smaller, less desirable properties. With limited disposable income, many young renters are forced to cut back on other expenses, such as entertainment, travel, and dining out, to cover the cost of rent. For those who live in major metropolitan areas, this also means long commutes and a reduced quality of life, which can negatively affect mental health and overall well-being.
Government responses: Policy divergence
Both Australia and New Zealand have implemented various policies in an attempt to alleviate the rising cost of living, but the effectiveness of these measures has been mixed.
In Australia, the government has introduced several measures to address housing affordability, including the First Home Loan Deposit Scheme, which allows first-time buyers to purchase a home with a deposit as low as 5%. Additionally, the government has implemented various incentives for property investors, which has had a mixed impact on housing prices, making it easier for some to enter the market while inflating property values overall. However, critics argue that these policies have done little to address the underlying issues of housing supply and affordability. Instead, they have exacerbated wealth inequality and led to skyrocketing house prices.
In New Zealand, the government has also introduced measures such as the First Home Grant, which provides financial assistance to first-time homebuyers. Additionally, in 2021, the government introduced changes to the tax system, including removing tax exemptions for property investors. The government has also pledged to build more affordable homes, but critics argue that these efforts have been insufficient, with the housing supply still falling short of demand.
Despite these efforts, both countries face deep structural challenges in addressing the housing crisis and the rising cost of living. Without more substantial reforms, it is likely that the burden will continue to fall disproportionately on younger generations.
The way forward: Addressing the challenges
The rising cost of living, particularly in terms of housing and rent, is one of the most pressing issues facing younger generations in both Australia and New Zealand. To mitigate these challenges, policymakers must take bold steps to address housing affordability, reduce inflationary pressures, and ensure that wages keep pace with the rising cost of living.
In Australia, this could involve introducing policies that increase the supply of affordable housing, such as relaxing zoning laws, incentivizing developers to build more affordable homes, and expanding public housing programs. Additionally, addressing income inequality and ensuring that younger workers receive fair wages for their labour is essential in easing the financial burden on younger generations.
In New Zealand, similar efforts to increase housing supply and improve affordability are crucial. The government must also focus on tackling inflation by reducing reliance on external factors and finding ways to support local industries and job creation. Moreover, introducing stronger tenant protection laws could provide greater security for renters, who are particularly vulnerable to rising rental costs.
For both countries, creating an environment where younger generations can thrive will require a comprehensive approach that balances the needs of the economy with the welfare of the people. By addressing the root causes of the housing crisis, reducing inflation, and ensuring that wages keep pace with the cost of living, Australia and New Zealand can ensure that younger generations have a fair chance at achieving financial stability and success.
