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One Bank Breaks Ranks With New Boom Mortgage

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ANZ is issuing ten-year IO mortgages… What does it mean?

So ANZ has broken ranks with the big four, and is aggressively targeting investors with a new ‘boom mortgage’.

That’s not what they’re calling it obviously. To them it’s just an interest-only mortgages with a ten-year interest only period.

But to me, that says ‘boom!’

From the SMH:

ANZ Banking Group is loosening some of the clamps it put on interest-only mortgage lending in 2017, after pledging to reopen the door to property investors following a period of excessive caution.

The big four lender on Thursday said it would again start offering customers an interest-only period of up to 10 years, up from five years now. It will also allow interest-only loans where a customer has a deposit of 10 per cent of a property's value, where previously it required a 20 per cent deposit.

The changes are a clear signal the bank is trying to spur growth in the housing investor market, where interest-only loans are most popular, after chief executive Shayne Elliott last month admitted it had been “overly conservative”.

It is also the latest sign of a loosening in restrictions on investor and interest-only loan growth, after the Australian Prudential Regulation Authority (APRA) late last year removed caps on these types of mortgages.

“On recent review, we have made a decision to increase our focus on the investor market. The upcoming changes demonstrate our continued appetite in the investor market, whilst ensuring we remain in line with our APRA requirements,” ANZ said.

Latest Reserve Bank figures show housing investor credit growth was just 1 per cent in the year to January. ANZ last month said its housing investor loan book shrank 3.8 per cent in 2018.

The remainder of the big-four already offer IO mortgages with a 10% deposit, so that’s not a huge change. But 10-year interest only periods… that’s pretty aggressive.

I did look into it, and it’s not going to be available to everyone. They’re going to be assessed at a minimum floor rate of 8.25%, which is a very high hurdle to cross. They’re marketed only for high-income professionals with stable jobs.

Still, it’s an interesting change in direction.

Over the past year or so, we haven’t seen any news that has pointed to a looser credit environment. It’s all been about how much tougher credit conditions have been getting.

So this is a real break in direction.

It signals that either

  1. APRA is now willing to back off a bit; or
  2. The banks have stopped caring what APRA thinks

Both are bullish signs for the market.

And if the market recalibrates so that ten-year interest only mortgages are the norm, that will give prices a boost. It increases the amount that people are able to borrow and service, and increases in borrowing capacity mean increases in prices.

So something has shifted here. There’s a break in the weather. A change in the wind.

It’s not exactly clear what it is, but either way it’s a big boost to the market.

Three traps for investors in 2019

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Looking ahead, there’s going to be a couple of key challenges next year…

Ok, the year is almost done and dusted. I’ve already started wearing my boardies into the office. My work-ethic has already switched over to margarita mode.

But let me drop a few thoughts on what 2019 has in store for us, and what I reckon the key themes will be – and what the key themes guiding my investments will be.

Theme 1 – Cashflow is King
With growth tapping out in 2018, and the Royal Commission and ongoing regulatory pressure meaning that we’re probably looking at a slow start to 2019, investor focus is going to shift further towards yield and cashflow.

On top of that, if Labor gets in at the next election (which I reckon they will if they can keep Bill Shorten’s profile low enough) then we’re probably looking at them delivering on their promise to reform negative gearing. That will change the yield equation even further, and put an even greater premium on cashflow performers.

That might shift the focus of investor activity out of the capitals (where average yields are ordinary at best) towards higher-yield regions.

This could have some interesting effects. Investors aren’t used to hunting for yield. There might be some adjustments, and investors will need to be careful.

For example, if you go to one of the data providers and look at their Top Twenty Yield Reports for example, then you’ll find the cashflow capital of Australia is Cairns. Right now, average yields on apartments are around 8%.

So investors are going to pile into Cairns, right?

Well, I hope not. I mean, there might be good manufactured growth plays on offer, but the yields equation is a trap.

I always thought the high yields in Cairns were to compensate investors for lousy growth – prices have been practically flat for decades.

But that’s only part of the story. Take a look at this property here for example. It’s an attractive unit in the premium suburb of Palm Cove. They’re taking offers over $230,000, and it’s currently tenanted at $320 pw.

Those numbers are pretty wow. That’s like a gross yield of 7.5%.

But then read a little further, and the Body Corporate Fees are $11,000 a year! (Lush lagoon pools, cyclone insurance, elevators etc.). So on a fully tenanted rental income of under $17,000 a year, you’re paying $11,000 in Body Corporate Fees, before costs.

That’s a yield of like 2.5%.

Not much to like about those numbers, especially in an area that has underperformed on capital growth for years.

Investors beware.

Bonus thought
While we’re thinking about traps for investors, let me ask you this. Is it illegal to rent your property to a friend?

No, of course not.

Is it illegal to lend your friends money? No, of course not.

Is it illegal to lend your friends money so they can rent your property at inflated yields so it sells at a higher price?

Probably, but it might be hard to discover or prove.

As focus shifts to yield, make sure you’re doing your due diligence on what the market is doing, not just particular properties.

Theme Two – Townhouses to Hold Focus
As I’ve written previously, the composition of construction in Australia has shifted heavily towards townhouses in recent years, particularly in Sydney and Melbourne.

Townhouses offer families a liveable but more affordable option, and townhouses themselves are politically sellable – they create more affordable stock without turning into an area into sky-scraper land.

What’s more, given the focus on cashflow outlined above, and given that negative gearing will probably be preserved for new builds, I expect townhouses to continue to come to the fore.

Townhouses can offer attractive yields to investors and developers, especially if they’re built well in popular locations. I’ve been focusing on townhouse development for a while now. I don’t see any reason to change that in 2019.

Theme Three – Decentralisation is a Pipe Dream
I expect a few market analysts to get a bit frothy about the regional markets in 2019. It’s easy to make the case – the capitals are consolidating, and decentralising the population is going to be a hot battle-grounds going into the election.

However, I reckon decentralisation will remain a pipe dream. Population flows where jobs grow, and I don’t know how you force migrants, or anyone, to live out bush. We’ll get a lot of chatter, but I don’t expect much will come of it.

I think the regions will continue to grow, but not spectacularly. They’ll be good targets for manufactured growth plays, but I wouldn’t be expecting anything spectacular in terms of natural growth.

Don’t believe the hype.

Have a Great Year Everyone

So that’s my thoughts about the year ahead. I hope this year has been a successful one for you, and I hope you’ve got something out of my musings. Tune in next year for even more market commentary, political insight and inappropriate comedy.

The stuff I’m famous for.

How to make and how to lose $100K in 13 months

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Flipping always looks like a great strategy in the good times. But are some investors about to come unstuck?  

 Sometimes you strike it lucky in property.  

Like this story of a guy on the Gold Coast who flipped a parcel of land for a $130K uplift.  

(The story appears in the UK’s Daily Mail, because there’s a picture of him with his girlfriend in a G-string. Pure class).  

A 23-year-old man has made more than $101,000 profit after buying a plot of land and mowing it twice. 

Anthony Dart, 23, bought the property on the Gold Coast for $310,000 and 13 months later he sold it for a staggering $439,000. Mr Dart told Daily Mail Australia he made a solid profit of $101,000 after expenses. 

The young entrepreneur was shocked by how much the property appreciated in value in just over a year. 

Hats off to him. From what I know of the Gold Coast market, at that price I expect he bought under market value, and that’s what made those kinds of gains possible.  

And with property prices on a tear-away in recent years, a lot of people would have similar stories.  

Trouble is though, people seem to think that these kinds of stories are the norm.  

Amazing deals like this happen when you do your research and buy under-market, or when you do your research and buy in an area primed for growth.  

That is, when you do your research.  

If you’re not doing your research, then you’re only going to get these kinds of results if you get lucky. And if you’re relying on luck, then you’re just gambling.  

And all gamblers lose at some point.  

Western Menbourne might now be about to become a case in point.  

There’s been a bit of a frenzy going on out there in recent times around house and land packages.  

It’s pulled in a lot of speculative activity, with buyers looking to flip their purchases before settlement.  

As prices stall though, there’s an air of panic brewing:  

Speculators who hoped to get rich on a boom in Melbourne land prices are “panicking” as settlements loom and they can’t find developers to on-sell their sites to, according to Resi Ventures’s Khurram Saaed, who has been developing for 15 years. 

Mr Saaed said he was getting one call a week from panicked speculators, including one buyer who had put down $21 million in deposits on a number of sites and risked losing all their money. 

“These are people who have been successful in other business, and who have just bought land with no due diligence in the hope of making a lot of money in three to four years’ time by flipping the site prior to settlement,” he told The Australian Financial Review. 

And there’s been a strong rise in people taking to gumtree to offload their properties, as real estate in general takes longer to sell:  

A rising number of land owners in Victoria are selling off-the-plan housing lots on classified advertisement and community website Gumtree ahead of their expected settlements next year. 

In the first three weeks of October, nearly 50 advertisements have been uploaded – more than twice the number in September – offering sales of lots in communities like Dahua Group’s Orchard project in Tarneit, Satterley Property Group’s Botanical in Mickleham, MAB’s Merrifield in Mickleham and Stockland’s Edgebrook Community in Clyde and Cloverton in Kalkallo. 

Other land sites for sale are in places such as Greenvale, Melton, Lyndhurst and new suburb Weir Views, all of which are about 20 to 35 kilometres from the Melbourne CBD. 

I’d be keeping a wary eye on this space.  

I don’t think the growth corridors of Western Melbourne were bad places to invest, if you were genuinely investing. I think they’ll be decent going forward.  

And I wouldn’t say no to buying there now… but I would be driving a very hard bargain with eyes wide open.  

But if the flipping spree was as widespread as they say it was (possibly isn’t, who knows), then some extra diligence really is in order.  

Don’t say I didn’t warn you. 

JG 

The biggest risk for property right now? Morrison.

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Could the response to the Banking Royal Commission be too harsh? The RBA is clearly worried.

One of the headwinds looming for the property market is the fall out of the banking Royal Commission.

I mean, it was so serious they had to get ‘Royalty’ involved. I’m sure Meghan and Harry were taking a very keen interest in between cuddling koalas.

We’re already seeing a chilling effect on the credit market, as the banks try to get ahead of the game and get their houses in order.

And the spikey end of the stick with that is serviceability calculations. One of the key revelations is that the banks were possibly lending people more money than they should have, particularly by under-calculating their living expenses.

So the banks are going hard now, and mortgages that would have just got a rubber stamp 18 months ago are now being poured over with a fine tooth comb.

That’s been a bit of a drag on things.

But that’s all before the Commission has even handed down it’s report, and the recommendations that are probably going to come with it.

That’s due in February.

That creates a political risk in my mind.

It’s political because the government will have to respond to the recommendations.

And with the Morrison government taking a belting on every front right now, there’s every chance we could get something a tad ‘populist’.

(Remember it was Morrison who came up with the bank levy tax.)

And that could leave the banks reeling, and it may be the blow that knocks lending to the floor.

APRA restrictions, uppercut. Royal Commission preliminary findings, right jab. Morrison implementation of findings, whirling haymaker.

Now I’m no fan of the banks, but I am a fan of property and business lending, and it would be a shame if property owners, investors and business owners end up bearing the brunt of all this.

But surely we could trust the government not to do anything ‘rash’?

Hardly. In an election year, with the Prime Minister struggling for legitimacy, we’ve got all the ingredients for some pretty wild policy thought-bubbles.

Expect them to go for headlines, not for sustainable reform.

Now this might sound like Jon’s got his cynical hat on again, but I’m not the only one worried about where this might be headed.

The RBA and Treasury have also taken the unprecedented steps of cautioning the government against going too hard.

The AFR was reporting that:

The Reserve Bank of Australia and Treasury have privately cautioned the Morrison government that any regulatory response to the financial services Royal Commission must be careful to avoid putting the brakes on lending to home buyers and business.

Treasury then doubled down on their private warnings, taking it public last week:

Treasury secretary Philip Gaetjens has warned that a key risk to Australia’s strong economy is banks cutting their lending too much in response to the Royal Commission into financial services and tougher credit rules imposed by the prudential regulator.

Amid complaints from small business and home buyers that they are finding it harder to attain finance, Mr Gaetjens said a tightening of credit conditions could constrain household consumption and business investment.

Now some people might say that this just proves that the RBA and Treasury are in the banks’ pockets.

But I actually think it says the opposite. Both institutions know full well the carnage that could be unleashed if the government went too hard now, just as the impacts of APRA restrictions are still being digested.

This is not a time for rash policy on the run. This is a time for cool heads.

Let’s hope the heads of Treasury and the RBA prevail.

JG

Shock! Can your tenants sue you now?

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New “renter’s rights” don’t make sense… until you understand where they’re coming from.

Why are we now so concerned about “renter’s rights” all of a sudden?

In the last month both Victoria and NSW introduced new “reforms” to “protect” renter’s “rights”.

Victoria led the way (as it always does):

Premier Daniel Andrews announced 130 reforms will be introduced into parliament this week…

Every rental home will have to meet basic standards including functioning stoves, heating, deadlocks, gas, electricity and smoke alarms.

Rental bidding will be banned and rent increases will be limited to once a year.

Renters will be given the right to make minor modifications without landlord consent, such as nailing a hook on the wall or installing anchors to stop furniture falling on children.

People will also be able to keep pets with landlords only able to refuse the right of a tenant to have a pet by order of the Victorian Civil and Administrative Tribunal.

The changes will also allow for quicker returns of bonds, which will be capped at four weeks’ rent…

Ummm…. Were there really many rentals out there that didn’t have electricity or functioning stoves? I thought we already had legislation around that… and smoke alarms?

And that pets one… man, that is a doozy. What if my tenant wants to keep a horse in my two bedroom unit? What about Great Dane, which is really just a horse pretending to be a dog?

Have I got no capacity to say, I really don’t think a pet is appropriate? Where do you draw the line?

Anyway, NSW then followed up with a similar bunch of reforms:

NSW renters are set to see the biggest shake up of rental laws in more than two decades.

The major changes will include limiting rental increases for periodic leases to once a year, set fees for breaking a fixed-term lease and no penalties for domestic violence victims who break a lease.

Other changes include introducing minimum standards like basic access to electricity and gas, that buildings are structurally sound, and have adequate natural or artificial lighting and ventilation…

Better Regulation Minister Matt Kean on Thursday introduced long-awaited amendments to the Residential Tenancies Act, labelling them “sweeping reforms for tenants’ rights”.

“Under these common-sense changes, renting families will be able to make minor alterations, such as installing a picture hook to hang their family photos, and will benefit from a new set of minimum standards to ensure properties are in a liveable condition,” Mr Kean said.

Again with the “minor alterations”… what does that even mean?

I mean, everyone is going to have a pretty different definition of ‘minor’. Am I going to get a call from a tenant:

“Hi Jon, just wanted to let you know I made some minor alterations to the walk-in pantry…”

“Oh…?”

“Yeah, I just turned it into a hot-tub and sauna. Nothing major.”

“What? That sounds like a pretty major alteration actually.”

“Oh… Well, you’re probably not going to be happy about the new meth lab then either.”

Seriously though, does the legislation cover every definition of what you could possibly do to a place and what could be considered minor or major? Are we going to tie up the courts deciding if the changes to the light fittings were excessive or reasonable?

Madness.

But that’s all a problem for the legislators.

But I come back to the original question. Where has this come from?

Were there a spate of deaths in rental properties without fire-alarms? Were there thousands of people desperately wanting to put in picture hooks, petitioning the government?

Were there rental properties without electricity?

No. I don’t think so.

Rather, this happened:

The number of rental households has been steadily increasing, and broke 30% nationally at the last census.

At the same time, higher house prices have meant that many wanna-be home-owners are realising that they may be renting for a lot longer than they thought.

In the past, I think people knew that renting didn’t give you the same privileges as owning, but that was ok because you didn’t think you’d be renting for all that long. Just long enough to get your deposit together before you bought.

Now though, as house prices remain out of reach, people realise they’ll be renting for a while, and so find that they do actually care what rights renter’s have, in quite specific detail apparently.

And so put these two together: a growing number of households renting plus a growing interest in renter’s rights – and you’ve got the making of a serious political block.

30% of the population is huge, in political terms.

And so there were votes to be won in playing to the “renter block”.

And that’s exactly what Victoria and NSW have done. This is where this is coming from.

And I’m afraid it probably won’t be the end of it either.

The doomsday artist that made me millions (Now he’s totally wrong)

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Harry Dent is back. Who would have believed it?
This guy made me millions, now he’s got it totally wrong!

I'm going to let you in on how the doomsday PR game works.

But before I do that Harry made me millions: Back in 1995 I read his book called the ‘The Great Boom Ahead'. It sent a rocket up my backside and motivated me to get into real estate in a big way.

Back then he was predicting an almighty boom.

He got it absolutely spot-on. I invested in real estate in a big way and now I'm a multimillionaire. So I'm a Harry dent fanboy from way back.

So the fact that I can give you an objective opinion is based on a 20 year love affair. I'm not a hater, I just think he's now got it wrong, and being in the marketing game I think he's been managed by a PR department that has sold him on bad-news sells.

*Sidenote: You've really got to be careful as to who you take advice from. I know several people who absolutely hate Harry with a passion. Why? They subscribed to his thinking and narrative in 2011-12, bought into the ‘The Great Crash Ahead' and they sold all their real estate in Sydney, literally costing them millions of dollars in future profits – Ouch!

Now to the crux of the matter and how the doomsday market works.

Some people look at me a little sceptically when I say that the media is just a circus, and everyone is pushing a barrow.

“But Jon, you've got a property portfolio worth millions. You've got a barrow too.”

And sure. That's true. And I'm probably biased to property in ways that I don't even realise. But I'm not out there pissing on punters and telling them that it's raining.

Like Harry Dent is.

Who is Harry Dent?

He's an American ‘economist'. He's toured here a few times.

In 2011, he came and said Australian house prices were about to fall 50%.

In 2014, he came and said that Australian house prices were about to fall 60%, and that people should sell up.

In case you're new to the planet, those predictions never quite came true.

In fact, since 2014, house prices are up 46%, so that makes his prediction about 100% wrong.

Hellava track record.

But that's not stopping him. He's back, touting another book on another road show.

What's more, he's shamelessly glossing over his track record.

From his publicist:

“Mainstream media pundits are calling me crazy, an idiot, and a quack.

“But that’s nothing new…

“After all, I’ve been making predictions that people are sceptical of for decades… but one after another keeps coming true anyway!”

One after another? Seriously? I can think of two calls that were so far off the mark they weren’t ‘wide’, they were out of bounds on the full.

And if people had listened to you and sold up in 2014, they would have lost out on hundreds of thousands of dollars.

But this is the thing about the game – it doesn’t matter.

In a world where facts matter and truth rules, an analyst whose predictions were consistently in the wrong post-code would find themselves out of a job.

No one would care what Harry had to say.

But this isn’t the world we live in. We live in a world of hype and whatever sells.

In that world, the Harry Dents do well. It doesn’t matter how wrong they are. The only thing that matters is how ‘wow’ they are.

And predictions of a 60% fall in house prices is pretty wow.

And so what’s to stop economists like Dent making sensational and sensationally bad calls?

Nothing.

There’s no downside. The only thing that matters is what kind of media splash he gets.

Now, I’ve read Harry’s work. Mostly, it’s pretty good he knows his stuff. If you want a good introduction into how all the pieces of the global economic order fit together, this is as good a starting point as any.

And I’m not going to begrudge Harry for playing the game. He knows how the game works. He knows that if he came all the way to Australia and said that house prices might fall 2-3%, no ones going to listen to him.

And so he’s doing what he needs to do, to be the entertainer that he is.

And I don’t even hate the game all that much. It’s mostly entertaining, and if you can see through the fluff, it can give you a read on where trends are going.

But make no mistake. It’s a game.

If it’s not a game, how does an economist with two 100% wrong calls under his belt get taken seriously?

It’s a game. The media is full of hype and trouble and sensation.

If you don’t know this as a starting point, then you’re any one’s fool.

NO B.S. FRIDAY: It had to happen. You can now buy property in Bitcoin.

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Bitcoin and property are completely different assets, but that’s what makes it special.

The internet’s been all a chatter this week with some bloke who’s willing to accept Bitcoin as part payment for his house.

And now here I am giving his property in The Basin, Vic another plug. Check it out. Looks like some pretty sweet digs.

My first thought when I saw this was that it was bound to happen sooner or later. Crypto-currencies are here to stay. I’m still undecided about hitching my wagon to Bitcoin in particular, but crypto-currencies as a concept? Forget it. The genie is out of the bottle. They’re not going anywhere.

My second thought was that this guy is a marketing genius. With a vague promise to maybe possibly accept some bitcoins as part of his deal, he’s secured national TV coverage and wall to wall print.

…For free! I’ll take my hat off to that kind ROI any day of the week.

Domain was first to break the story:

“A vendor selling a family house in Melbourne’s outer east is willing to accept Bitcoin as payment, in what could be the first cryptocurrency property transaction in Australia.

… Rob, who did not want his surname printed, is an experienced builder who buys, renovates and flips houses. He first bought into Bitcoin earlier this year, but had watched the cryptocurrency market evolve over the past decade.

His latest project, 1411 Mountain Highway, The Basin, is up for sale, with its listing declaring the “owner is agreeable to accept part payment in Bitcoin”.

“I see cryptocurrency at the moment as like the early days of the internet dot com era,” Rob told Domain.

He believes marketing the property as Bitcoin-friendly could be the deciding factor in someone’s ability to purchase the house.

“If it came down to two or three people, and both had their maximum borrowing capacity at a certain amount, and one has bitcoin — because the banks don’t look at Bitcoin as an asset — that could be something that could get them across the line.”

If it happens, I’ll be curious to know how they manage settlement. Even over a short settlement like 30 days, the price of Bitcoin can vary a lot. Who carries the risk on that one?

But there’s a second leg to this story.

There was a bit of chatter about the deal on one of our forums and it turns out Rob is a student of Dymphna’s!

Classy play, Rob. You’re doing us proud.

I should have known Dymphna’s fingerprints would be on this one. At her Next 10 event she talked a lot about the disruptive power of crypto-currencies, and the impact the block chain would have on the property market.

If you missed the event, we’re in the process of compiling a bit of a best of. It’s no easy task condensing a full day packed full of info down into 50 minutes or something like that, but we’ll get there.

So stay tuned for that one.

So where to from here? Are we going to see a rush of properties on to the market, quoting prices in Bitcoin?

That’s not really where I see it going. I think there’s a bit of a mismatch of vibrations right now between cryptos and property. The crypto space is very dynamic. Prices are all over the shop.

Property on the other hand is steady and predictable. 10% in a year is a big move. Some days Bitcoin does that before morning tea time.

So their different vibrational natures – their frequencies – means there are challenges in marrying them up. Until the price of cryptos settles, and it will have to eventually, then they’re not natural bed-partners.

But that also means they can be playing different roles in your wealth strategy.

Property is a steady, long run play.

Cryptos however can be your fortune makers. The volatility means that if you’re ahead of the curve, you can make easy money timing your entry and exits… if, of course, you know what you’re doing.

(Or you’ve got someone in your ear who does.)

New entrants into the coin space can also offer huge asymmetric risks. They cost you peanuts to buy, but can deliver 1,000% 10,000% gains in an incredibly short time.

So this is something I’m starting to take a serious interest in. As Rob was saying, Bitcoin’s been on the scene for a while, but these are still very early days in the block chian revolution.

And I’m keen to take you all along for the ride with me. I’m involved in a high-end mastermind group, and I’ve got a couple of mates there who are crushing it right now. Like making insane returns. Serious bananas.

They’re not up for sharing all of their trade secrets, but I have convinced them to open the game up for us. Even just a fraction of their knowledge is going to put you miles ahead of the curve.

So put December the 13th into your diary. I’m going to get them in and run a crypto webinar. I’ll bed down the details soon, but for now, keep that Thursday night open.

And let’s all make some serious coin.

Can you see cryptos and property getting into bed together?

Are We (Property Investors) Evil?

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If investors are evil, explain this…

I know I’m pissing in the wind, but here’s what really happening in Australian property.

One of the interesting themes that does the rounds is that the reason that house prices have risen so much and therefore the reason why our poor children are sleeping in cardboard boxes under the railway tracks, is because of investors.

Greedy investors have destroyed the market, destroyed affordability and destroyed the Australian dream.

A lot of this goes unchallenged. I find that interesting. I think what it shows is that we still have a bit of cultural cringe around making money.

I think a lot of investors do feel a little bit guilty that they’ve made good money in recent years. That somehow, they must have done something at least a little bit naughty.

Nevermind that the CEO of any major Australian bank takes home a small African nation’s GDP worth of stock options each year, or that Paris Hilton gets paid millions of dollars to rock up to a party and do balloon animals.

No, I made 10% on a property I spent months researching. What a bad boy am I.

It is just one of those things, and as funny as it is, I’m still happy that we don’t live somewhere as money and status conscious and shameless as the US.

So it is what it is.

The thing that I find interesting about this stylised fact, is that there isn’t a whole lot of data to support it.

It is true that we saw the investor share of mortgage finance increase in recent years, especially in NSW and Victoria.

But when APRA started putting a brake on investor lending, we found out that the processes that gathered info on whether the loan was OO or investor were pretty loose.

It didn’t really matter, so the banks didn’t stress all that much about recording whether someone was an investor or a first home owner.

And there were some creative work-arounds that allowed first time buyers to stretch a little further if they said they were buying it as an investment property – by saying they expected $x rental income, and using the default bank assumptions about their own rental expenses, and squeezing out a couple of extra hundred dollars in servicing.

And so some chunk of investor borrowing might actually have been owner-occupier.

Of course, now it’s flipped the other way. Investor mortgages are attracting a premium, and so some investors are actually finding it better to declare as owner-occupier if they can.

So who knows what the truth of it is.

The best guess is probably the ABS survey of Household wealth. Corelogic did some interesting analysis on it the other day.

What they found is that yes, there has been an increasing in the number of households that are rental properties.

It’s up from around 26% of households in 1994, to about 30% in 2016.

That’s not a HUGE increase in 22 years, and note that it’s fallen in the most recent observation. So the narrative of investors ransacking our children’s future doesn’t really bear out here.

But what’s interesting is when they look at owner occupiers.

The percent of households that own outright has been on a steady downward trend – from 44% in 1996 to just over 30% in 2016.

That’s a much bigger fall than the rise we’ve seen in rental properties.

At the same time, the share of households with a mortgage has risen steadily, up from 27% in 1996 to 37% in 2016.

Again, making the rise in rentals seem small.

So the real story here is the fall in the number of properties in Australia owned outright.

Is that about evil investors buying all the properties? Hardly. It’s about more households having a mortgage, and presumably, for longer.

What’s driving that? Price rises. As prices rise, it takes longer to pay off a mortgage (since prices have risen much faster than wages).

What’s driving price gains? Record low interest rates, strong population growth, with a sprinkle of Chinese money.

So this isn’t a story about first home buyers doing it tougher. It’s about everyone doing it tougher. It’s about everybody having a mortgage and having it for longer.

“Evil” investors have nothing to do with it.

Not that I imagine that’s the last we’ll hear of it…

Why does the evil investor story have so much appeal?

NO B.S. FRIDAY: Want Free Money? Hit Up This Guy.

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The people who know are getting ready for ‘post-work’ society.

Do you love free money? Want to know where to get it?

Go and see this guy:

That’s Sam Altman. He’s the president of “prestigious start-up accelerator” Y Combinator.

If that image and that business name don’t scream tech guru I don’t know what does. He’s pretty much a poster-boy for Silicon Valley.

And now, the word is, he’s giving out free money.

Not just willy nilly unfortunately. Basically he’s funding his own UBI experiment.

I’ve covered UBI – Universal Basic Income – before, and it’s one of the main trends Dymphna’s identified for her Next 10 event. If you’re new on the scene, essentially everyone in the country gets income from the government. It’s not means tested. It’s not eligibility-based. It’s just free money.

It’s an idea that just 20 years ago seemed plain nuts, but now it’s one of the hottest topics in town.

Especially Silicon Valley town.

Should we be worried that Silicon Valley is all hot under the collar for UBI? Yes. Yes we should.

Why? Because these are the guys who probably have the best idea about the jobs carnage that’s coming.

They’re the ones who are making the robots that are going to put more than half of us out of a job.

And we’ve always had churn before. Horse and buggy drivers became cabbies became Uber drivers.

It’s just that now, things are getting exponential. Technology is expanding and improving at such a wild pace that we have no hope of keeping up with it.

And technology used to be labour-augmenting – the way a calculator helped an accountant do their job. Now it’s labour-replacing. You don’t need the accountant any more. There’s an app for that.

These two things combined mean that we’re potentially on the cusp of a jobs Armageddon. Jobs will be destroyed faster than the economy can create them.

The geniuses at Silicon Valley recognise this. They also recognise that if no one has a job, no one will buy their gadgets.

The solution? The government gives everyone money.

Ok, maybe I’m being a little cynical there.

The more idealistic proponents of UBI say that in a world with no work, we’re going to have to come up with some sort of system that enables people to live.

And in a world staring down the abyss of deflation (again, thanks technology. Way to make everything cheaper), then we can afford to do it.

The US was printing $80bn a month at some point there. Barely moved the dial on inflation. No reason why we can’t just give everyone enough to cover the basics.

And people can still work if they want to. If they want super nice things, they can earn the money to buy them.

That’s the basics of UBI, and we’ve seen a number of trials rolled out in different places, Finland, some part of Canada.

But what I find interesting here is that this is a private initiative. This isn’t some government backed pilot study. This is just some rich dude putting up his hand to run a trial.

Business Insider was running the story:

“Y Combinator, the largest and most prestigious startup accelerator in Silicon Valley, has announced new details of its upcoming experiment to give Americans free money.

YC will select 3,000 people across two states and divide them into two groups. The first group will include 1,000 people who will receive $US1,000 a month for up to five years. The second group of 2,000 people — which the study will consider its control group — will receive $US50 a month.

YC President Sam Altman announced on the company’s blog that he was interested in answering that question with a study of “universal basic income.”

Many of Altman’s techie peers have endorsed or expressed interest in UBI as a potential solution to the widespread automation of jobs that economists say the coming decades will bring.

Proponents also say UBI could lift people from poverty and raise the collective standard of living for everyone, generating greater prosperity. Sceptics, meanwhile, argue that UBI will sap people of their motivation to work if they already have money coming in.

There haven’t been any long-term studies to say either way, however. YC’s study will be one of the largest experiments in US history and should provide data never before seen in a developed country.

The new study will test a variety of factors to gauge UBI’s effectiveness, including “individuals’ time use and finances, indicators of mental and physical health, and effects on children and social networks,” the company wrote on its blog. The most important outcomes to watch will be whether people keep working and feel engaged in their communities, and whether the maths could work out to deliver UBI at all.

Kind of what I love about this story is that this is how the real world works.

In politics, you argue for a long time about the theory of an idea, and then you roll it out across the country.

Businesses that operated like this would never last long.

In business, you run small-scale trials. You develop a prototype. You test it out on a trial market. You refine the idea, you trial it again. Eventually, after enough iterations, you end up with an idea that works.

That’s what we’re seeing here. We’re seeing a small-scale trial – as a way to test the waters and see what works.

More public policy should be run this way.

And the results are going to be interesting. What happens when people don’t have to work for a living?

My bet is that people start doing things that are really meaningful. Sure, there’s probably a phase we’re people stay home and masturbate into a packet of Cheesles. But that gets old pretty quickly.

Soon enough, people will start to wonder how they can fill their days with meaning.

That’s my bet. Let’s see what happens.

Technology isn’t just shaping business. It’s promising to turn society on its head. Get along to Dymphna Boholt’s Next 10 event to get the full picture on where we’re going. It’s mind-blowing.

The boom-driver baton now goes to…

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Investors are sidelined. Who’s going to step into the breach?

It’s a tough credit environment at the moment.

I’ve seen tougher, but then I’ve been around for a long time. If you’re new to the game, you might be wondering what’s going on.

Two years ago, banks were falling over themselves to throw money at you. Now, they don’t want to know you.

People are a little freaked that this is going to cause the market to ‘collapse’, but I think this misses the point.

The credit restrictions, introduced into the system via APRA, are deliberate friction. They’re sand in the gears of the market.

But the market fundamentals haven’t changed. People want to borrow, banks want to lend.

And once the sand has worked through the system, those fundamentals will reassert themselves. We’ll pick up where we left off. Maybe with cooler heads perhaps, and that will be a good thing.

The other point I’d make is that so far, it seems that the restrictions are squarely aimed at investors.

Investors are getting the “It’s not you, it’s me” talk from their banks, and then going out the next day to see their bank walking hand in hand with some floozy owner-occupier.

“I really thought he could change!”

And it’s one of the hidden stories in all of this. While investor lending is slowing, first-home owner lending is actually booming.

In NSW, first home buyer finance commitments are up 80% year on year!

While in Victoria, FHB finance is up an also-thumping 45% year on year.

These are some seriously huge numbers.

(Of course you don’t hear APRA stressing about the irrational surge in first home buying – even though the data shows that FHBs tend to be in much more precarious financial situations than investors… but that’s another story.)

The point is, that while investor lending is slowing, owner-occupier lending, particularly to first home buyers, is picking up the slack.

In part, I think this has got a bit to do with simply how the data are recorded.

I mean, we know for example that in recent times, many first home buyers have entered the market, not with a house for themselves, but with an investment property.

Some data showed that in Sydney, for every first-time buyer, there was a first time investor.

So you can bet that these first home investors no longer have any incentive to label themselves as investors – not with APRA gunning for investors.

They’re going to come back across the line and say, actually, we’re owner-occupiers.

(And who knows what the actual truth is.)

So some of the boom in first home buying may just be column jumping.

But I’m willing to bet that a good chunk of it is real. Remember that we’ve had some pretty heft first home buyer bribes in NSW and Victoria come into effect this year.

In Victoria, they scrapped stamp duties on properties up to $600K.

And then this week, the Federal government introduced legislation that allows first home buyers to dip into their super. From the SBS:

The coalition used its numbers in parliament’s lower house to pass the measure – announced in the May budget – on Wednesday.

The legislation also allows older Australians to contribute the proceeds of the sale of their family home to their super.

Labor and the Greens are against the proposal, with the opposition claiming it will do nothing to address housing affordability.

Shadow treasurer Chris Bowen argues it will instead work to undermine the country’s superannuation system, labelling it a “sham”.

Assistant minister to the treasurer, Michael Sukkar, accused Labor of deliberately peddling misconceptions about the scheme…

“It’s quite shocking and surprising to see any political party take a view that a tax cut for first home buyers is something that they cannot support,” Mr Sukkar said.

I don’t imagine this is going to be huge. But add it to the bribes in Victoria and New South Wales, and it’s adding up to something substantial.

First home buyers are now a force to be reckoned with.

And as people wait for this energizer boom (it just keeps going and going) to run out of puff, the baton has passed from investors to first home buyers.

(For now. Investors will be back.)

If there’s a strategy here, it may be to look at entry-level properties. That will be the first market segment where these grants will be felt.

But money into the system is money into the system – regardless of where it lands. People selling out of entry-level properties buy into the tier above.

A rising tide lifts all boats.

The Australian property market is a beast with more than one engine. Back one off and another takes up the slack. That is how it seems to work.

Seen it before, see it again.

Noticing any impact in the entry-level segment?