Illustration: Simon Letch Don't let anyone tell you the younger generation would be happy to stay renting forever. Nuh. And while the hurdle of owning a home and a mortgage seems almost insurmountable to the young, jumping it is just the start of our property ambition. Most people want to keep moving up to a bigger and better home. Every promotion we get makes us wonder whether we can afford a better pIace. This preoccupation with the quality of our housing is the first part of the reason house prices have risen so high: ever growing demand. Don't forget that our newly built houses are much grander than they were even 10 years ago. And most older houses have been renovated and extended to make them better.

Illustration: Andrew Dyson When two-income families became common people thought "great, now we can afford a bigger mortgage on a better place". When we got on top of inflation in the early 1990s and interest rates fell so far, people could have paid off their mortgage faster, or bought a boat, but more people said "great, now we can afford a bigger mortgage on a better place". Trouble is, you can't satisfy increased demand for better houses – particularly better-located houses - by building more places on the outskirts of the city. And when a lot of people decide to move to a better place at the same time, the main thing they do is bid up the prices of existing houses. One change in recent decades is the growth of the services sector and the knowledge economy (more workers knowing how to do things; fewer workers making things), which means many of the jobs have gravitated to the CBD and nearby suburbs.

So the meaning of "position" has changed from good views to "proximity" to the centre. In theory, the amount of land within 10 kilometres of the GPO is fixed. In practice, factories and warehouses can be moved further out, while detached houses can be replaced by townhouses and low-rise or high-rise units. Even so, in every city, property prices have risen more the closer homes are to the centre. Another source of increased demand for housing is our high population growth, caused by our policy of high immigration. Then there's foreigners' investment in our housing, though this isn't as big a cause of higher prices as many imagine because – in principle but not always practice - foreigners are only supposed to buy newly built or "off-the-plan" homes. That is, create their own supply. Another source of greater demand is Paul Keating's introduction of capital gains tax in 1985 and John Howard's introduction of a 50 per cent discount on the tax in 1999. This has made owner-occupied homes (which are exempt from the tax) and, thanks to negative gearing, rented-out homes, more attractive as a form of investment, relative to shares.

So house prices are higher partly because we've acquired a second motive for home-ownership: not just the security and freedom of owning the home you live in, but also the prospect of homes becoming much more valuable over time. Of course, increased demand leads to higher prices only if supply fails to keep up. And that's where our governments – state and federal – have failed us. It's better now, but for ages state governments failed to do enough to permit the building of more homes on the edge of cities. We got more immigrant families, but not more homes to put them in. Worse, state governments have allowed people in inner and middle-ring suburbs and their councils to resist the pressure for more medium-density housing – more units – from people wanting to live closer to where the jobs and facilities are. Just last week the Reserve Bank published estimates that this resistance to higher density had added more than $300,000 to the average Melbourne house price and almost $500,000 to the Sydney price, over the past two decades.

So, who pushed housing prices so high? We did. Who failed to do what was needed to counter the increase? Our governments. The feds failed to limit the growth in demand (by limiting immigration and fixing the tax system), while the states did too little to increase supply (by discouraging the building of new homes on the outskirts and by permitting a first-in-best-dressed mentality by people in inner and middle-ring suburbs). Why are they allowing the proportion of home owners to decline? Because most things they could do to genuinely help first home buyers would come at the expense of existing home owners, who have more votes than the youngsters. Loading If young people and their parents don't like that, the answer's more pressure at the ballot box. Wheels that squeak more.