There’s a lot of belly-aching around affordability and home ownership rates at the moment. But what most people forget is the role investors play in the mix, and what most people overlook is that pushing up ownership rates pushes out investors.
When it comes to statistics, perspective matters.
Take the statement “milk is 96% fat free”.
Compare that with “milk is 4% fat.”
Exactly the same statistic. Exactly the same fact. But a huge difference of interpretation.
It’s the same story with the ‘troubling’ affordability and home-ownership statistics.
Take this one. In 1994, 71% of Australian owned or were paying off their home. 18% rented.
Fast forward to 2012, and home ownership has fallen to 67%, and 25% of the population were trapped in a rental trap.
Isn’t it terrible? Fewer Aussies have access to the great Australian dream (though really, I don’t think we can claim much ownership over that one – the great Australian dream is also shared by Americans, Canadians, Europeans and Asians. Perhaps there are remote African tribes that don’t dream of owning homes…)
But fewer Aussies own houses, and more of us are caught in rental traps. Somebody should do something about that. Won’t somebody think of the children?
But let me tell the exact same story in a different way.
Between 1994 and 2012, many Australian families – many of them struggling to get by – achieved greater financial security through property investing. They created income streams for themselves. Some created successful portfolios.
Some did so well that they dropped out of wage-slavery for good. Some even went on to write blogs for property investors because they like the sound of their own inner-monologue.
As a result of more ordinary Aussies participating in this particular asset class, the number of investment properties across Australia rose from 18 to 25%. Property, as an investment class, began to mature.
Ok, I’m playing it up to be provocative, but you get my point. It’s the forgotten side of the coin when we’re talking about home-ownership rates.
If you think that home-ownership rates are too low, then you must believe that home-investorship is too high. And if you’re arguing for policies that increase home-ownership, then you must be arguing for policies that push investors out of the market.
Most people you hear complaining about ownership rates seem to ignore this.
It’s like people who argue for more public spending, but against more tax. You can’t have both.
But let’s imagine we’re comfortable with pushing investors out of the market. What then is the optimal ownership rate? I don’t think anyone is opposed to the concept of rental properties as such, so what’s the optimal ownership rate?
Presumably then it’s somewhere between 67 and 100%, but where? 71? 92?
Do I have any takers on 92?
There’s no theory I’ve seen about the optimal ownership rate, either from an economic or social perspective.
And a 25% rental rate isn’t that high on a global scale. Many cities in Europe have rental rates above 75%. And I’m not talking outer-Ukraine Europe, I’m talking heart of the Eurozone engine room. In Berlin, 90% of households rent. In Hamburg it’s 80%.
Is it too high? Well, maybe, but it doesn’t seem to faze the Germans too much.
Because people, expressed through that collective action force called ‘the market’, made it that way. Home ownership rates in Australia aren’t 67% because the government decreed that they should be. It’s just the way it turned out.
So if you’ve got a problem with 67%, then you’ve also got a problem with leaving that result up to the market.
Now I’ll be the first to admit that the market often gets it wrong. Left to itself, it can often create outcomes that are socially sub-optimal. But if you want to tinker with market outcomes, you need to know what you’re doing.
For example, if you think ownership rates are too low, where’s your leverage point? Do we need to do more to encourage home ownership? How? Legislate that everyone under 30 has a separate account to save for a deposit? A house-inspection for the dole scheme?
We’ve had first home owner grants and all that, but they only serve to push prices up further.
So maybe it’s a problem with prices? Do we need to stop prices rising? But young people want to “get on to the property ladder” precisely because there is a property ladder – because prices go up. If prices were flat, I think we’d see the ‘great Australian dream’ for the purely rational calculation that it is – and a lot less angst about ownership rates.
So then maybe we need to discourage investors – is that our leverage point? Remove negative gearing? Tax rental income at a higher rate? Shut down self-obsessed bloggers with rambling blogs? Push every investor out of property and back on to the share market roller-coaster?
I don’t have a strong view on ownership rates, but I think the rise of the property investor over the past 20 years is a good thing. I’ve seen it liberate a lot of people from the rat race. I’ve seen it help a lot of people take control of their financial futures.
And I’ve seen the economic, social and political freedom that comes with financial security. It’s no bad thing.
Maybe it’s just a glass half empty / glass half full kind of thing. But from where I sit, more and more Aussies are using property to buy themselves financial freedom, and I reckon it’s awesome.
But as I said, statistics are all about perspective.