Another roundtable on the ‘affordability crisis’ trots out the same old lines, and shows us just why we can lock in price increases over the longer term.
The Real Estate Institute of Australia (REIA) hosted a housing affordability roundtable last week – to look at ways to fix Australia’s so-called “affordability crisis”.
The round-table included some big names, like:
- Kevin Andrews MP, Minister for Social Services;
- Peter Bushby, President, REIA;
- Brent Davis, Industry Policy, Master Builders Australia;
- Graham Wolfe, Chief Executive, Housing Industry Association;
- Alex Boorman, Research Director Australia / NZ, RFI Intelligence;
- Phil Naylor, Chief Executive Officer, Mortgage and Finance Association; and
Hang on lads. It’s looking a little imbalanced. A bunch of blokes from the builders and banks. This is a social issue. Can’t we get some one from some do-gooder organisation, maybe a woman..?
Op, there she is:
- Hannah Gissane, Project Co-ordinator, Equal Rights Alliance;
Jokes aside, the communiqué they issued at the end of the roundtable is a good wrap up of just where housing is at in Australia, and where it’s going. And why prices aren’t going to become “more affordable” any time soon.
It starts out with the usual preamble on housing being a right and affordability being a social and justice issue:
Access to affordable housing is a goal that is shared by the Government and all sectors of the community. A lack of affordable housing impacts on the functioning of the economy as well as the wellbeing of individuals and the cohesiveness of communities and society.
With first home buyers finding it increasingly difficult to enter the housing market, home ownership in Australia is declining after four decades of stable levels. In November 2013 the proportion of first home buyers in the total number of owner-occupied housing finance commitments dropped to its historically lowest point. First home buyers currently face significant challenges accessing affordable housing. This suggests a need for policy makers to address the issue.
To me, these numbers alone don’t necessarily mean there’s a problem. The share of FHOBs in finance commitments is down, but down from levels that were propped up by first home owner grants and so on. As I’ve written before, I also think we need to see a year or two’s worth of price momentum behind the market before first home buyers will take the jump.
Likewise with the fall in the rate of ownership. Because if you’re arguing that the rate of ownership’s too low, then you’re arguing that the rate of investorship is too high. That’s a judgement call, and it’s a judgement call you don’t hear anyone making.
Me, I welcome the emergence of property as a real investment class over the past twenty years. I think it’s a good thing. I’ve seen property as an investment class liberate a lot of people from the daily grind (myself included!).
And our ownership rates remain well above a lot of countries, anyway.
And so, like pretty much every bit of analysis on ‘housing affordability’, there’s no mention of any policies to bring investor rates down.
No, in fact, I think we’ve heard all of these policy prescriptions before:
One of the factors highlighted at the roundtable as a major driver of increasing house prices and declining affordability is the undersupply of housing. This was identified as a priority policy issue.
Supply has been unable to keep pace with demand due to a number of reasons: land availability; zoning policies, length of planning processes and environmental regulations. Furthermore, unless supply is addressed the gap between supply and demand would significantly widen by 2015.
Taxes at local, state and the Commonwealth level were also identified as one of the important factors determining housing supply and influencing housing affordability.
Bang on.
The Australian supply side is constipated. We’re just not building enough houses, and this is far and away the biggest reason why prices are so high, and why prices are just going to go higher and higher.
But we all know this (well, the readers of my blog do). There’s nothing new here. The question is, what do we do about it? Let’s see what they say…
After some pie in the sky dreaming about removing stamp duties, which I agree with, there’s this:
It was suggested that greater consumer awareness and government support of lenders’ mortgage insurance and enhanced competition amongst lenders would drive product innovation, especially focused on prospective first home buyers, and would be facilitated through a strong securitisation market.
Additionally, options to unlock the potential of shared equity as an alternative form of housing finance should be considered.
Hang on. Product innovation, a stronger securitisation market, alternative forms of finance….
These are all demand side measures aimed at pumping more credit into the system. What’s happened to the supply side?
Because, as I’ve written before, if all you do is pump demand without doing anything to help supply respond, then all you end up with higher prices.
Affordability gets worse. Not better.
And this, in a nut shell, is where the “affordability debate” ends up every time it comes around, and why house prices are locked into an upward trajectory.
Because as much as we try to hide from the fact, if we truly want greater affordability, then what we want is for prices to come down.
But what government in their right mind would come out and say, “Today, we’re announcing a policy aimed and making house prices fall.”
Forget it. And as much as parents might feel sorry for their kids, I don’t know many who’d be willing to take a hit on their own capital values.
And so there’s a lot of agonising over what should be done, but no real willingness to actually see prices fall.
But the government needs to be seen to be doing something. And so they pump demand. Handouts to FHBs sounds like a good idea…
But it jacks up prices, and in a few years we have another debate about the affordability crisis…
Seen it before, we’ll see it again.
Rising house prices are part of the economic furniture now. Nothing’s going to change that.
Jenny Kennedy says
Hi Jon, I totally agree, less housing = increased prices. Seems like they either 1. need a committee to work that out or 2. maybe you could send them a link to your blog? 🙂
Cheers, Jenny
droidie69 says
Seems the best solution would be to introduce a ‘scaled rate’ of tax deductability to investment property homes, a consistent bank lending criteria, set rules for council development and not subjective guidelines and the affodability problem would be solved without economic devastation.
Peter says
The greatest problem and hurdle on the supply side is still the approval pathways through local councils. I am a builder and draftsman. I have applied for approval of a triple garage in a wester Sydney council area. On first submission it was too large with hard brickwork surfaces. So we revised it as a submission utilising Colourbond. Then it was too Colourbondish so they wanted brickwork but it needed to shrink again. The triple garage needs to be a double but they want to set the dimensions. I can go on and on about the discussions, however the main point being that what should be a simple garage on a 1300 square metre block to park a boat and two cars has been met with resistance for 6 months now. Ultimately the final solution makes nobody happy and this injection of funds into the economy will probably never go ahead. Furthermore this down time (which is experienced by all developments for all things) costs money. This money needs to be passed onto the final customer and that final customer needs to recover that money when they onsell that property. No solution can address affordability without closing the gaping hole of 20,000 man years (per annum) that NSW Councils waste of developers and customers time in seeking approval for developments.
Tom says
Thanks Peter, it is good to hear from someone with personal experience. Generally, commentators are third parties. Unfortunately, no Council Executives are likely to give their side of the story. I wonder, “Why?” “?Shame?”
Ken. says
Is it true that the Western Sydney area is a working man’s area and if so, your council may want to keep your area down to just that and can’t allow a 3 garage home in that area. Cheers, Ken.
Wayne Auld says
Get rid of local councils, facilitate development, particularly in South Western Sydney, a 2nd Airport may help infrastructure & development here, there are vast land holding waiting for release, hompered by local Goverents & State indecision over Badgerries Creek Airport. If you build it, they will come!
Kaye says
You need rising prices to give young people the incentive to go without to save up a deposit and jump into ownership then enjoy the gain later. Credit is already too easy for cars, TV, cruise, new phone, so their pay packet gets committed on consumable items.
Terry Promnitz says
Funders have already brought in innovative loans with limited parent guarantee etc. The problem I see with FHOB today is they expect too much with a house, pool boat etc. They earn enough but they want too much too soon and parents make it easy for them to stay at home.
Red tape is certainly costly and maybe there needs to be an authority apart from council to administer state wide so there is uniformity and less doubling of fees.
rob kelly says
Yes local councils force up prices by loading more developers with costs, who in turn pass on increases to consumers.
Every developer has created a passive income for all Councils but developers get treated with contempt or jealousy, it seems every obstacle is put in their path to achieve success.
In some areas developers need to have a lawyer with them every time in a meeting with council planners.
Many councils on East Coast have tried to slow development because they cant supply services
because they have grown too fast.
Brian says
On one hand councils make it hard to develop while on the other hand state government plans fail with infrastructure development. Space is not the problem it’s just where there is space there is no infrastructure or jobs.
The 2nd sydney airport and very fast trains open up all sorts of opportunities. Something councils or state governments wouldn’t know if they fell over one.
Charlie says
Negative gearing has killed young people’s home dream, killed many jobs in the overall economy.
I urge all young people move to other countries if you can.
What a hypocritical government.
Tom says
Spot on Charlie.
Paul Keeting recognised the problems introduced by negative gearing, but sqibbed when public outcry from vested interests made his knees shake. Sooner or later, some leader will have to bite the bullet and limit the amount of deduction that can be claimed. The Government coffers are suffering from low Tax receipts and affordability is nosediving. Logic dictates that the level of deduction which can be claimed MUST be reduced.
Peter says
I think that negative gearing is overly considered in the affordability argument. These negative geared houses provide rental properties for renters. Investors that set up negative gearing accept the risk of providing a renter a house by topping up the actual costs of owning that house, in the hope that the increase in value over time will compensate them for that sponsorship. If you sold them all off (almost at once) by eliminating the very minor benefit of negative gearing then you would also need everyone renting one of those negative geared houses to buy a place to live in. This would still hold demand at greater than supply and the prices would continue to rise. Furthermore, when no one sets up negative geared investments the government would have to build more government housing to address the shortfall.
Jan says
I had space in my backyard and it still took 4 applications to get the approval from Council for a unit. The draftsman had a meeting with the Council before the application was made and they said it was good to go.The problem was the high turnover of town planners that by the time I resubmitted there was a new town planner with a differing opinion. They don’t seem to have standard interpretation of their rules.
Jan says
I think FHOBs would still raise the affordability issue even if the prices fell. It’s all a matter of their priorities as mentioned in several comments. I know someone on a 35k income who had no problem raising funds for a customised brand new BMW that he hardly uses, but would not buy a house because it has to be in Melbourne’s Brighton. I see many young people who live at home that would prefer, to travel and have several nightouts in a week, than raise a deposit for their home. If I could raise a deposit within 2 years on a single income (administrative officer) in spite of rent, daycare charges, car maintenance etc…. so can they. They need to set their priorities and be realistic with what they can afford.
Dean says
In the old days, there were a lot more siblings. This had many profound results, and one of them is the nature of competition. Scarcer resources and a need to stand on our own 2 feet, led to a desire for independence, and the drive and understanding of the need for sacrifice to gain. Pursual of the great Australian dream of house ownership was central to this ethos, and percieved as an indicator of success.
Nowadays, families have a lot less kids per household…and this is also having its impact on a range of issues. Not unlike the Chinese “emperor syndrome”, many of the kids today have a very different ball park to play in, and a sense of entitlement that flows through to, for example, the realisation that they are sitting pretty..they will eventually end up with Ma and Pa’s house, which is worth over half a mill, and meanwhile ma and pa will house them, support them thru university, send them on o/e experiences, buy them their fist cars, the list goes on.
They have seen the hardships their parents faced, the sacrifices they have made, and really dont want to go thru such experiences.. Of course, naturally, parents also desire their children a “better life” and more opportunity etc than they had.
But this is a double edged sword. They have grasped the freedoms their parents have set for them, and this has resulted in far less of them desirous of entering the debt ridden lifestyle of a 30 yr mortgage.
i think the FHOB market will continue to stagnate, and even retreat as a different set of values is embraced by a very different young australian.
Tom says
Dean, This is an interesting twist in the arguments presented – one which I fear would generally not be considered by the authorities and think tanks of those with vested interests.
There is also another, opposite effect of having siblings. My children set up their own JV, cashing it out later to buy their own homes. It was a good introduction to the benefits of property investment.
Dean says
Tom, excuse my ignorance, but i take it JV is Joint Venture”?. Anyhow, I certainly applaud your Kids for doing this, but feel that probably, you as a good parent had something to do with them displaying such maturity and foresight.
Sadly the notion of parenting , and setting your kids up for success has been pirated by a consumerist parental paradigm. Seemingly many kids of today are mollycoddled and not shown how sacrifice and suffering , doing without, saving, planning and execution of dreams, can actually engender pride and self respect..a sense of self worth. Parents who don’t want their kids to walk their footsteps in this way are actually , to me, doing them a big disservice. There is nothing for nothing in this world. Everything has a cost. And i think the social costs that giving your kids everything on a platter…making it all too easy on them, will only lead to a lot of suffering for these people (the parents and the kids)as they get older and mature, and discover, the world is not as simple or easy as they have had it.
Ken. says
You can lead a horse to water, but you can’t make it drink. When our kids turn out like ourselves, it is a credit to ourselves as parents. Sadly though, today, far too many kids tend to listen to society that teach them how to stuff up. These kids want what their parents and grandparents have, now. Governments and councils should allow and encourage builders to build houses to lock up stages, that can be enlarged, easily, in the future. I saw this a lot in Brisbane in the early seventies. Cheers, Ken.
Colin Glover says
Nobodys talking about this aspect that some 25% of new units are never occupied because they are just a secure place to store capital of people who live in an insecure country. We will never get ahead of the shortage because its to easy for almost anybody from another country to purchase. Thus there is an almost endless supply of buyers. That is until we either change the rules drastically or we have a significant fall. Real property should not be just another commodity hawked on a global scale.
See this article http://www.thebull.com.au/premium/a/45063-housing-blame-game-here-to-stay-in-world-of-infinite-demand.html
One reads daily about agents setting up shop in Asia to sell off the plan etc. You can bet at the first sign that the rules are about to change they will lobby like hell to stop that change.
Paul Doody says
When will someone see the light. Stocks are so short in Melbourne and yet the media and the so called experts keep harping on about the over supply of apartments. To cite our own experience we listed our apartment privately at $30 A WEEK over the top the agents told us and leased it in less than 24 hours and could have done 6 more. Councils and government need to remove the red tape and encourage development.
Wayne says
The lax rules of the FIRB are a disgrace to all Australians, why should China be allowed to buy the Farm, forcing a FHOBS out of the Market. Foreign ownership is illegal in most Asian Nations, they realise the threat for what it is?
Richard says
As a developer and builder, what is never spoken about is this cost of building, this after red/green tape. There are more and more regulations on WHS and building standards. Eg: window glass thickness and aluminum frames for windows just keep on getting thicker and bigger. But are the houses I built 5 – 10 years having windows blow in? NO! I am in Tassie and at the moment it costs the same or more to build than buy an existing house IE: less than 5 years old. We have to remember every manufacturer/importer/supplier of housing products has more and more regulation added as well, as material costs goes up BEFORE the builder buys it.
Councils do not want to make it easy for developers (yes you do feel the jealousy from them at times), the easier it isfor a permit, the less staff council needs!!
There is far to much take in today’s world, so many people think that you can only work normal hours and have car loan, credit card debts and then THINK there should be money left for deposit.
Leo says
Hi Everybody, My reply might be a bit late for this conversation, but I went to 2 Agents in one semi-outer suburb last weekend. I asked to look at houses 320k to 350k. I have a list of eight from one agent and 5 from the other, further more 3 of these listings are for good rental houses that presently have tenants, and 1 recent ex-rental, also being sold. My query to the agents found several properties had been on the market for up to 3 months. Well, I’m surprised!!! All this talk about affordability and lack of supply. Anyone in Victoria will have heard that just north of Melbourne is being developed for 20,000 people to live. Hume Highway Donnybrook Rd Mickleham Rd Craigieburn Rd. Huge residential development with infrastructure nearby and Industry around 5 km away, and the Tullamarine Airport close by.
I think the problems of raising a deposit are caused through Credit Card debt. Buy now, pay later. How do you save? The banks don’t care. They have the majority of baby boomers as customers. There’s great profit from instant credit debt at between 15% to 21%. The banks are happy enough. They’ll continue to provide home loans to those that can meet their strict criteria.
It comes back to lifestyle choices, do you keep up with technology, internet and mobile gadgets with contracts that are constantly upgraded to entice to spend. Renewing or upgrading is almost a pastime for some, costing ever more money. If you’re young, are you going to forgo an internet connection or a mobile phone. Are you not going to be found on Facebook, Twitter Etc.
The demand for housing will always be there. The population is growing exponentially. Growth of 3% of a small population to still less than 1.5% of a much larger population. Ultimately there will come a time of practically non affordability for many as wages can’t keep up with rises prices. I read recently a report that stated the median wage in Australia was 110k, and therefore housing is still affordable.
I believe in the 80% – 20% rule. Which means 80% of the people are earning $45k to $75k and the other 20% are sharing that $110 k and above. This does not equate to affordability even in the outer suburbs, which even more slowly still continue to rise in prices.
Where will it end? What is the solution? Who knows?
Probably lots of Investors renting to lots of people who cannot afford to buy, just like Europe and other places.
The Great Aussie dream may be slowly fading, as things do.
“Nothing stays the same except change”!
Conrad says
The ECONOMY is a Time and Money issue and Councils and Government WASTE BOTH That:s WHY CHINA IS SPEEDING AHEAD OF AUSTRALIA…AUST TAKE TOOOOO LOOOOOOOOOng to make a decision and Spend TOOOOOOOOOO MUCH MONEY in DOING SO…