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Why has nothing worked to fix Australia's housing mess?

[This is an extract from Alan Kohler's new book, The Great Divide: Australia's housing mess and how to fix it]

Why has a succession of inquiries and reports, along with a museum full of academic papers and journalism on the subject, never led to serious, effective action to improve housing affordability?

In my view it’s because all the work has been both aimless and unsupported by a national consensus. Solu­tions by the dozen have been proposed to increase the supply of dwellings through better zoning and planning and/or to reduce demand, usually by knocking off one or more tax breaks. But what’s the aim, exactly? And more importantly, what’s the real national mood, and therefore the politics?

The politics of it is both simple and difficult: housing is a cartel of the majority, with banks and developers helping them maintain high house prices with the poli­tical class actively supporting them.

Everybody involved in this game – homeowners, banks, property developers and state and federal politicians – wants house prices to rise for their own reasons. Renters don’t stand a chance.

Australia’s 27 million people live in 10.8 million dwellings, of which 65% are owned and 35% are rented. That is the lowest rate of home ownership in twenty years, but it’s still a big majority. Two-thirds of the population is therefore in favour of restricting the supply of houses to maintain the value of their own and they are supported in that by banks and developers.

Banks make more profit as higher house prices increase their assets and interest income, developers make more money if the price of their product is high, state governments make more stamp duty, and greater wealth supports the national economy and keeps federal politicians in power.

It means that any genuine attempt to deal with housing affordability and the shortage of rental accommodation would have to contradict the interests of both the majority of citizens and those with the most power. There is lip service paid to the problem of affordability and ‘promises’ to build a certain number of houses to ease it, but these are usually not fulfilled, and are never actual promises to build anything, just aspirational forecasts – like the latest one from the Albanese government to ‘build’ 1.2 million houses over five years.

I’ll get to that in a moment, but first, if there is ever going to be a housing policy that means anything, it needs to have an explicit aim. All the work on this subject, including the latest project initiated by Julie Collins and now led by Clare O’Neil, is like a journey with no destination. What are we trying to achieve? And does anyone who matters really want to achieve it?

In my view, the aim should be simple and easily stated and understood and should refer to the problem … that the price of housing is now twice the multiple of income it used to be. It was three to four times average weekly earnings, now it’s seven to eight times. Any serious effort to deal with housing affordability should be explicitly aimed at getting that ratio down and keeping it there.

Expressing that as the aim of policy and then providing leadership towards a national consensus around it must be the start of any genuine plan. Any government policy also needs to acknowledge that the two most important factors in housing affordability have little to do with housing and won’t ever be part of any housing poli­cy: interest rates and bank regulation.

Only two things have ever resulted in a (temporary) improvement in housing affordability: higher interest rates and, in 2016–17, a crackdown on bank lending to real estate investors. But neither of those things was aimed at improving the affordability of housing; interest rates rise and fall according to what the Reserve Bank thinks the economy needs, and the Australian Prudential Regulatory Authority is concerned with the stability of the financial system. Neither has a mandate to do anything about the price of houses and their actions won’t be influenced by any government policy designed to improve housing affordability.

But perhaps there’s an even more fundamental bridge that needs to be crossed before we look at solutions: is the big rise in house prices since 2000 good or bad? Economists refer approvingly to a “wealth effect,” and Australia has had that in spades: per capita wealth has increased fivefold in thirty years. Whenever the ABS releases the latest survey of wealth, I get reports from economists writing that it’s a very good thing. The economy has got stronger due to the increase in wealth, and the majority of Australians are happier.

The value of other assets – shares, infrastructure and commercial property – has also been increasing more rapidly than incomes, but that is unequivocally a good thing, except when it gets out of control and turns into a bubble that bursts. Superannuation accounts, mostly without residential property, have been increasing at a clip of about 9% per annum, about three times the rate of wage growth, and any fund that only manages to return the rate of wage growth is likely to go out of business.

The difference with housing, of course, is that it’s also where you live, and as a result there are losers as well as winners with high and rising prices. And while the winners outnumber the losers two to one, and in a democracy that would normally be the end of the matter, sometimes the right thing for a society isn’t necessarily what the majority wants. Many people, myself included, used to enjoy smoking, but governments decided it was bad for society and worked on cutting it back through advertising bans, labelling and taxes.

Half of Australia’s homeowners are locked in a wealth-creation partnership with a bank. Real estate is such an effective accumulator of wealth because you can borrow at least 80% of the value, often more, and the leverage means that every dollar you invest is multiplied fivefold when the price increases. That’s usually a risky, speculative thing to do in investing, but with real estate it’s safe because there aren’t 50% crashes in residential property as there are on the share market about every ten years, or not for 130 years anyway, so banks are happy to lend much more than they are with shares. And bank executives build their wealth alongside their customers; they are not only very keen to lend against housing but also keen to make sure that house prices keep rising.

It’s not just the house-owning majority who think about housing as wealth-creation as well as, or even in­stead of, shelter – everybody regards housing as an appreciating asset. Renters talk about getting on the ‘property ladder’; they’d prefer it to be easier to get on, but they want it to be a ladder once they’re on it. We’re all so used to house prices always rising that it’s hard to imagine life any other way.

And the biggest tax dodge of all, of course, is that if you live in the house there is no capital gains tax at all. I know families that have grown their wealth by moving every two to five years, buying, renovating and selling for a tax-free capital gain. Tough on the kids and their schooling, but it works a treat!

So the number one blockage to dealing with housing affordability is that there is no consensus that there is a problem at all, let alone how to fix it. Academics, economists and journalists all say it’s a crisis, and millennial renters complain bitterly because they cannot buy a house, but the majority of home-­owning Australians are happy to shut up and keep growing their wealth – and banks, developers and governments are all happy to make sure it happens.

My view, and the basis of this book, is that there definitely is a problem and that the high price of housing is undermining social cohesion and the proper functioning of the economy and the nation. The doubling of house prices in relation to incomes has distorted Australian society over the past twenty-five years and focused wealth creation on an unproductive asset. Something must be done about it even though most people may not like it.

Moreover, there is no point making a small change, say by trying to keep the housing-to-income ratio where it is, or down from the current seven to eight times average weekly earnings to six to seven times, or even five to six times. To achieve anything in life you have to aim high. If there is to be a genuine effort to improve housing affordability, the aim must be to return the ratio to three to four times average weekly earnings, as it was twenty-five years ago.

The latest national median house price is $740,668. The current average full-time adult wage is $1,907.20 per week, or $99,174.40 a year – call it $100,000. For the house price-to-­income ratio to be what it was twenty-five years ago, the national median price would have to halve, to $370,000. But that’s not going to happen, of course, and it wouldn’t be a good idea even if it could. Even if the government could pull that off, which it couldn’t, there’d be a riot and, as there was in the United States in 2007/08, an economic collapse.

More realistically, house prices need to stay put for a while and allow incomes to catch up. Average weekly earnings are currently rising at about 4% a year. For the national median house price of $740,668 to be 3.5 times income, the average wage would have to be $210,000, more than double what it is now. At 4% growth in incomes per year, that would take about eighteen years.

The only time house prices remained unchanged for that long was from 1930 to 1949 – that is, during the Great Depression and the period of price controls in the war. Even after the recessions of 1982 and 1991, it took less than half that long for prices to start rising again.

So 15-20 years of static house prices would be unprecedented, but that sort of time frame might also get Australians out of the habit of thinking that house prices always rise and that housing is the best way to build wealth. And if housing affordability is to be properly dealt with, we have to change that mindset, because house prices won’t stop rising at twice the rate of incomes unless we stop expecting them to.

If the government were serious about housing affordability, it would announce an affordability target like the one that I am suggesting, of something like three to four times average incomes, and would say: “We’re going to achieve that target by doing everything we can to ensure that house prices stay where they are for eighteen years, to allow incomes to catch up.”

So how would that be done? It’s easy: by ensuring that there was enough supply to meet demand, and since it’s probably working against two enormously powerful forces that are doing their own thing – monetary policy and bank marketing – that means both sides of the equation, demand and supply, must be pressed into service … And every tool in the shed must be put to work.

 

This is an extract from Alan Kohler’s new book, The Great Divide: Australia’s housing mess and how to fix it.

Alan Kohler AM is the Founder of Eureka Report, finance guy on the ABC news and columnist for The New Daily.

 

46 Comments
PeterJ
December 01, 2024

In my opinion housing ( first house) expectations, size and features have changed over significantly the last 30 years (say) years.

Johm CHURCH
November 28, 2024

Typical all talk and no suggestion. Why aren't super funds compelled to lend money for housing instead advocating for everyone to become renters .

James
October 30, 2024

Australia has become a very high cost of living country in almost every area. Housing is no doubt the biggest problem. It's a vicious circle. As the cost of living goes up, so must wages and so the cost of everything goes up again. Action and reaction. It's a conundrum that requires a major overhaul of tax and policies. Ken Henry did a comprehensive report and ........crickets! No politician would touch it!

Dudley
October 31, 2024

"Australia has become a very high cost of living country in almost every area.":
$ cost not as useful as Median Work Hours to Pay Cost of Living.

May be better data than this:
https://www.numbeo.com/quality-of-life/rankings_by_country.jsp?title=2022&displayColumn=1

'Local Purchasing Power: This index indicates the relative purchasing power in a given city based on the average net salary.'

Pete K
October 28, 2024

I like Alan Kohler. I know he's a leftie but one you can't help liking for his intelligence, wry sense of humour and obvious desire to try to improve our society and help people with less. Of all the comments here, many of which are as interesting and informative as the article itself, the only one with a workable long term solution is Andy's. Henry George was a genius, widely read and much admired in his day - even Winston Churchill in his early days in politics tried to implement his ideas.
Taxing the gains made in land and other resources rather than production and work - i.e. wages and business, makes eminent sense. Problem is how to implement it? How to get wealthy home owners and landlords to accept such a change. Pretty close to impossible as Winnie himself found out.
As for Alan's plan to hold down house prices for 18 years whilst allowing wages to grow is, as many of you have already commented, and like so many grand socialist schemes, completely impractical.
One area worth investigating as Lydiard has commented, is holiday let's. AirBnB admits that it has about 1.5% of Australia's housing stock listed. That's around 150,000 houses. At the very least these should not be eligible for any form of tax relief.

GeorgeB
October 29, 2024

Pete I also like AK for the reasons you mentioned but the best reason I can think of why "Georgism" would never work is that nobody would want to own land if "all existing taxes were replaced with a single tax on land values". In other words you could too easily avoid all existing taxes by renting which together with all other expenditures would become cheaper because there would no tax.

Peter
October 27, 2024

The birth rate in Australia has not been above 1.6 since the early 1970's.
So, we are essentially building houses for the people immigrating to Australia.
We obviously need immigration, but do we need immigration at such a high level that there are not enough houses!
It seems to me that a more sensible immigration rate would be one that is commensurate with the rate at which we can build houses/apartments.
The latest figures I have seen are that 3000 people/week are immigrating to Victoria. There is no chance that enough houses/apartments can be built/week in Victoria to accommodate that level of immigration.

Andrew Smith
October 28, 2024

Misinterpretation versus the more mundane and our permanent population stagnation with boomers last synptoms and still, significant vs 'immigrants'.

Firstly modern 'immigrants' are neither permanent nor able to buy houses eg. international students and other temporary visa holders counted under the NOM net OS border movements 'barometer' are flexible; permanent migrant are capped and limited to 190K p.a. (many already onshore and counted in).

They are not house buyers, buy they are hosted by friends relatives, home stays, backpacker hostels, on campus student accommodation, off campus student accommodation, studio apartments, sharing apartments, units and houses; much of the this is off market or informal.

Oddly our FIRE media does not take the above into account for analysis of supply (relies on paid public listings), nor Covid catch up, while using headline NOM data for demand or guesswork on 'immigrant' homebuyer or renters leads to suboptimal or even invalid anaylsis.

What's missed?

While higher multilples of household income are needed for now to purchase, median house values have stagnated over the past decade (7% benchmark), while both apartments values and prices have dropped, while the 5 million in the high fertility boomer 'bomb' or 'bubble' cohort are in or transitioning to retirement, (with remaining oldies 1+ million), followed by low fertility generations, and less demand....stagnation.

Not one to spruik property or related investment when many or majority of houses lose value immediately at purchase; related we need to look more at diverse accommodation and housing needs versus obsession with family houses as our society and population changes, qualitatively.

Claiming undefined immigration (dominated by temporary international students) as the driver of house prices (but stagnant values) may help owners and sellers, but may leave younger impatient FHBs overleveraged with millstones around their necks?

Hal Epstein
October 27, 2024

A few suggestions

We are too greedy -houses are totally under utilised ie look at the space that is used most of the time and very little of the time - I suggest you will find one or two rooms in this category in most houses- blame the Americans who set the trend of 1 bathroom per bedroom which we have blatantly followed- better utilisation and sharing is essential.
Houses are too inflexible - the family grows and you have to move out. An integrated housing community grouping with modular designs where rooms can be added or subtracted is the answer .

There are hundreds of thousands of 1/4 acre blocks available out of town- just imagine fast train Sydney Goulburn Canberra with a 1/2 hr commute in either direction. Governments seem incapable of grabbing the potential and running with it. A few less useless subs and we would have billions to spend on such infrastructure.

Lastly who in their right mind is going to downsize and be faced with the ever increasing additional costs of stamp duty , agents fees, moving etc
and moving costs.

I plead guilty to all of the above and will only be leaving home in a box !

Andy
October 27, 2024

Have a look at "Georgism" by the economist Henry George. Georgism is concerned with the distribution of economic rent caused by land ownership and natural monopolies. George advocated replacing all existing taxes with a single tax on land values . He argued that this tax would redistribute the wealth that would otherwise accrue to private landowners, forcing them to repay the community for their exclusive use of a public resource. There is a society here in Australia

https://hgfa.org.au/
Encourage work. Reward people who create things.

Seems to make a lot of sense, try and reward activities were people generally create something and increase the productivity of society, rather than sitting on a piece of land. Wouldn't solve the housing crisis, but perhaps reduce the cost of land, and not made it so ridiculously expensive.

God fordid the day the resource boom finally ends - and the iron royalties and taxes stop. We will be bankrupt in no time. Yes Australia is a great place to live, but other than a few exceptions we don't really produce much value add products.

Wolfgang Bose
October 25, 2024

I just do not understand the housing and tax policies here in Australia.
Fancy making the ownership of your first residence tax tree............... forever !!!!!!
Why not looking at the average price of a home in your suburb, making this amount tax free and then taxing everything above that amount every financial year.
Why not let only one property being allowed to be "negatively geared" and any subsequent property not anymore.
This certainly would eliminate property speculations.
Why not set up Housing Co-operations to build 10th of thousands of homeunits or townhouses for members, as it is done in Germany for a long, long time and it seems to work very well to increase housing stocks.

Dudley
October 26, 2024

"Fancy making the ownership of your first residence tax [f]ree":
https://www.ptireturns.com/blog/property-tax-rental-income-tax-germany/

'If you sell a property in Germany that you’ve owned for less than 10 years, any profit you make will be subject to a 25% capital gains tax in Germany (known as Abgeltungssteuer).Additional charges may be added such as solidarity surcharge and, if relevant, church tax.'

'However, there is an exception if the property has been your main residence for at least two complete years. If you’re single, it could be up to €250,000, and if you’re married or in a civil partnership, it could be up to €500,000. But remember, you can only get this exemption if you haven’t sold another property in the past few years.'

Germany: a cap on Capital Gains Tax free, 2 year qualifying period. Aus: no cap, no qualifying period.

German CGT dis-incentivises larger / more expensive housing.
demographia.com/db-intlhouse.htm

GeorgeB
October 26, 2024

Wolfgang, considering the relatively high income required to purchase even a median priced home near an Australian capital city and the high marginal tax rates that apply to such incomes (47%), anyone who has paid the full purchase price together with all mortgage interest, maintenance and local taxes with after tax dollars would hardy agree that it was all "tax free".

Barry
October 25, 2024

The suggested solution is economically impossible. It's not possible to build houses for half the price because tradies won't work for nothing or for half the wages they earn now. The suggestion is to let wages rise by 4% per annum and keep house prices stagnant for the next 18 years. That cannot happen because as wages rise, the cost to build a house will also rise with wage growth.

GeorgeB
October 26, 2024

You hit the nail on the head Barry, because housing could be more made more affordable if it was treated as an essential service as is education and health. Unfortunately the wages of building trades would then need to be controlled in the same way as that of other essential service providers (eg.teachers and nurses) which their unions are unlikely to accept.

Dudley
October 26, 2024

"It's not possible to build houses for half the price":

It is possible to halve the cost per occupant - by doubling the occupants per house.

Anthony
October 27, 2024

Important point, but more important is that most of the rise in prices is not wealth creation but land price inflation. Land has trebled in price relative to GDP in the past three decades. If it goes back to where it was, then house prices could be closer to half their current value.

Steve
October 25, 2024

A long winded way to say the issue is still lack of supply, which has been said quite a few times before. And of course every "solution" offered by politicians ends up making the supply/demand balance worse by juicing up demand by giving people more cash to throw at an auction. A slight problem with Alans proposed solution though. IF price rises were to be limited somehow (ie the capital gain is close to zero in real terms) and investors actually run at a cash flow loss (the much despised negative gearing where expenses exceed rental income), why would any private investor actually own property to rent out, at a loss, to sell for no real gain at some future point? Unless we can find someone willing to fill the gap (housing commissions?) who are non-profit (who puts up the capital?), then ironically you may find supply of rental property falls as investors find other places for their money. No simple answers but supply remains the root of all problems methinks. And for at least the last 50 years or so around 30% of the population have rented. So that proportion is pretty well locked in - they will not all become home owners no matter what, so someone, somewhere has to be providing rental properties. The more basic question Alan needs to ask is who will be the landlord of the future, and why.

Pacsun
October 27, 2024

Understand the focus on SUPPLY in the longer term but NOT bringing in the nearly 100,000 new people every MONTH recently would have to help in the short term and is something that could be done quickly with political will

Peter Herd
October 25, 2024

If we are really interested in getting young people on the housing ladder with home ownership which assists in community harmony. The housing industry is the second highest taxed in this country. The highest is mining.
So on a new home between federal, state and council tax amounts to 1 third of the cost of a new home. Check with the HIA if you have doubts. So why don't we allow young people to buy their first home "Tax Free" with conditions. Such as a a cap on the cost, say in South Australia, it can not cost more than $600k. Which means the owner only has a mortgage of $400k. If you sell it within 10 years the tax becomes payable. Once in a lifetime opportunity to get a home. You could put all sorts of conditions on it. A ballot every year for say 5000 homes per state to be built and sold with these conditions. This caps the amount each level of Government would be "losing"
Of course all sorts of government officials / politicians will poo poo the idea for all sorts of reasons.They can't afford it???
Never mind all the smoke and mirrors with first home owners grants and suchlike. Let's give people a real chance to become a home owner.

GeorgeB
October 25, 2024

“because you can borrow at least 80% of the value..the leverage means that every dollar you invest is multiplied fivefold when the price increases”
Actually two things can impact the “fivefold" multiple. One is inflation which erodes the real value of the multiple over time and the other is that every dollar spent on interest on the borrowing only enjoys a multiple if the rate of interest is less than the rate at which the price increases.

Derek
October 25, 2024

The fundamental question Australia has not asked itself is this; "Is housing an investment class or a human need?" Until we realise it should be seen as the latter, and decide - as a society, and by default governments - to change our policy framework, we need to be content with the stupid system we have and the continued inequality. We can't have it both ways.

Jon Kalkman
October 25, 2024

Alan, leverage is only beneficial if you are making a capital gain. It also magnifies losses. Speculation, (sometimes called investing), in residential property has become the national sport, led by some politicians because the capital gain is almost guaranteed. Growing population increases demand ahead of supply but the real advantage is in the tax arrangements.

Investment costs can be used to reduce taxable income from other sources. If property investment was a business, those costs could only be offset against business income and excess costs would be locked in the business and only written off against future business income.

Before 1999, tax was levied on the real capital gain after inflation. Now, only 50% of the gain is taxed if the asset is held for more than 12 months. When inflation is running at 4%, that’s a gift. It allows tax-subsidised income losses from negative gearing to be converted into tax-free capital gains. In fact, house prices took off when the capital gains tax was relaxed. House prices would become more realistic again when capital gains tax is levied on the real after-inflation gain and business costs are only deductible from business income.

That all adds up to huge incentives for investors and banks to encourage gearing to the fullest extent possible and thus bid up the price of housing. Show me the incentives and I’ll show you the outcomes.

Mark Hayden
October 25, 2024

Yes Jon, you and Alan are on the same page. I hope enough people can help correct some of these aspects.

Trevor
October 25, 2024

“That’s a gift”. Government generously letting the investor/speculator keep his own money is a gift. Or taxing capital gains is theft. Depends on your perspective. No tax on ppr capital gains.

Geoff D
October 25, 2024

As I have stated many times, one of the biggest issues is the failure to tax the profit on the sale of the family home. We are one of the few countries which fail in that regard. Family in France and Canada think we are having them on when I tell them about it.

The result is that the profits remain in the private financial system thereby forcing up prices. It sickens me when I hear about a home being sold for $30+ million after being purchased fifteen years earlier for $5+ million without any tax being paid! Tell me, what is fair about that when you have people being taxed on interest income when trying to save for a deposit or on everyday wages, plus having to contend with the costs of raising a family at the same time? It doesn't make sense.

Trouble is that, vested interests of politicians and their mates, and the ballot box, make it unpalateable to change the rules. It would be so easy to do and to then direct the collected monies towards the country's housing needs. No politician in this country has the guts to make the change. And please don't call me a socialist. I am a realist who believes in a fair go for all Australians!

GeorgeB
October 25, 2024

Geoff there is a distinction between “profit” and “asset inflation”– asset inflation on a PPR is illusory because assuming everyone needs a roof over their heads, any gains made on a PPR are recycled when selling/buying the next property. In fact there is a loss each sell/buy cycle because overheads such as taxes (stamp duty) and agency/marketing cost reduce the funds available for the next purchase by at least 8%. As an example virtually every property on our street has increased in value ten times compared to purchasing 30 years earlier but all this means is that anyone wanting to buy in now needs a dollar for every 10 cents they could have spent 30 years earlier.

Dudley
October 25, 2024

"you do not have to pay tax on any gain from the sale because of the principal residence exemption":
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence-other-real-estate/sale-your-principal-residence.html

"tax treatment of interest on mortgages for a principal private residence. For homeowners in Canada, this interest is not tax-deductible."
https://www.investopedia.com/articles/mortgages-real-estate/08/tax-deductible-mortgage-canada.asp

If capital gains payable then deemed a business asset, then interest paid would be deductible. Leading to a rush for maximum interest only loans or frequent remortgaging.

John G
October 24, 2024

The size of the population dictates the number of homes needed to accommodate everyone including the homeless. The only solution is for the government to focus solely on eliminating the shortfall of housing stock. This should be done at the low end of the market - 1 and 2 bedroom flats and 3 bedroom one bathroom homes. These should be owned by the government and available as rentals or on a rent-to-buy scheme (part ownership) thereby providing a steppingstone into home ownership. This would also fix the shortage in the social housing stock.

All social housing stock should be made available on a rent-to-buy scheme (part ownership), where feasible, with the occupant responsible for all maintenance and improvements.

First home buyers should be starting right at the bottom, building equity in the early years so that they can then upsize to a larger home as family size and income dictates/allows. Too many first home buyers want it all in their first home, possibly because of the high cost of upgrading (agents fees, stamp duty, mortgage fees etc.). To help in the transition stamp duty on purchase and mortgage should be able to be offset against any upgrades.

The higher end of the market will slowly adjust as supply and demand come into balance.

To achieve the above the government needs to fund the initial investment and increase the supply of builders/construction workers and materials.

Fortunate
October 24, 2024

Crikey Alan....The things you will say to sell a book..You should listen to your old boss and mentor Robert and read his recent article on the subject......We have crippled the housing construction industry with regulations and taxes all adding so much cost and have also over regulated our banking system preventing borrowing.....The demand side remains high with immigration yet it is uneconomic to meet the demand......Smaller cheaper housing out of town is the best option for now

Lydiard
October 24, 2024

Michael West reports on what he calls the AirBnB rort. The idea is to buy an 'investment property near the beach' list it for a very high per night cost, use it yourself but claim 365 days of negative gearing. Is this true, or does the ATO followup on these arrangements ($5bn in lost tax, West states) like some accountants suggest?

David Wilson
October 25, 2024

Yes, Lydiard this is true. I have a friend who is a surgeon (surprise!) who does this on the mid-north coast. Very popular strategy amongst a certain cohort.

Peter .j.C
October 27, 2024

Hi guys can confirm as well have associates who use the strategy as well that has been very lucrative over the years.??. I can’t see when my adult children ever gonna leave Home.

Greg Hutchison
October 24, 2024

Largely correct Alan. There is one option that could provide cheaper land and thus housing for the future. But it would require Governments working together. It was planned by Gough Whitlam back in the 1970's. Called decentralisation. It would offer people cheaper land and hopefully cheaper houses. It would required governments moving Departments or parts of them to regional centres. It would be a bit like setting up more Canberras around the States. It would require commitments by all Governments and some people with some get up and go. Our politicians are good with he talking but terrible with delivering Solutions.

OldbutSane
October 24, 2024

The housing problem has been going on for years (read Tanya Plibersek's bio - she tried to tackle the "problem" in the Rudd Govt years), so no one is going to change to no matter what, when we have an ever increasing population. The affordablility issue also has something to do with the ever increasing size of houses and apartments (when did you last see a 3 bedroom/1 bathroom house being built??) as well as easy credit - when did you last have to have a savings record with a bank, a cash deposit of 20% (also saved with the same bank) and with 6 month wait for a loan, like some of us did, and then face 28% interest rates? More people would be able to afford houses if they were smaller. Maybe the problem will probably solve itself when the boomer brigade die and leave all their money (and houses) to the poor millennials or when the population starts to fall (ever increasing population is unsustainable and will not solve the ageing population problem - just makes it worse over time).

Kym
October 24, 2024

What a load of waffle. It is a well known truism that supply is at issue here. Demand is robust. The reason for house price increases comes down to the demand side being higher than the supply side. It is basic economics and Kohler knows that all too well. To look at the current state of demand and supply (fix within the confines of the existing) misses the opportunity to do something radical - decentralise. We all want to be within 10 -15 kms of city CBDs and that is for a host of reasons. Could some of those attractions be put out of cities? Covid tree and sea change was a missed opportunity. People went but, they now are drifting back. If this was talked about, it would be the standard - the regions just don't have what we want. Had some planning been done to put industry, government departments, arts facilities etc out of the hub of big cities, I reckon more may have made the change to regions permanent. Even if the collective governments (why is there 3 levels of government in a tiny country such as a Australia?) succeed in installing concrete towers and bunkers in the cities and the liveability is decreased (hasn't anyone noticed the cities are already too crowded), people may want to move but will be trapped because the regions fall short. Geographically, we aren't utilising the land well.

GeorgeB
October 27, 2024

Kym the problem with decentralization is that it requires log term planning, something that politicians on both sides of the spectrum are loath to adopt because it does not meet the short term political agendas needed to win elections.

Kym
October 28, 2024

It does Greg but the supply issue, however solved, is a long-term planning and execution effort so maybe they could walk and chew gum? Sydney councils have had to come up with draft master plans for density if they are a part of the pronounced "transport hub" suburbs. Our council has just issued that for consultation. A realist might expect, this 30 - 60 floor tower plan to solve the housing supply, might be some time in actualisation. So wouldn't it make sense to start another little fire of an idea and start acting on it also. This is not going to be solved quickly or easily.
People are attracted to investing in real estate as it is an asset class that is familiar. If there are tax benefits, all the better. The risk return concept is decompressed. As much as Victorian's detest the new land taxing on vacant property and if they hold more than one holiday house, in reality, it will drive behaviour. Having property held for no productive purpose has tax concessions also. All those holding costs like rates etc are added into the cost base so less capital gains tax is paid if sold. As always, it is just the negative gearing and capital gains discount that gets considered but state taxes need a big look at.

Kevin
October 24, 2024

I notice that nothing was mentioned by Alan Kohler about the increase in home prices being caused by saturation over mass migration which is endorsed by both Labor and Liberal govts and the Teals and Greens to intentionally cause the shortage of homes and rental properties forcing both prices higher. This way state governments make a lot of income through stamp duty and other charges as well as banks making more profit because of ever increasing mortgage valuations. Saturation migration also gives the banks more customers generating more wealth for them. Ever increasing home and rental prices is causing a 2 tier society. The haves and the have nots. Many of the have nots will end up on Centrelink payments for their lives via Social Housing. Those in this situation are easy for govts to control.

john flynne
October 24, 2024

Alan,
Do our super funds really help this issue ? the evidence suggests that they do not and actually mitigate against home ownership. Perhaps they should be required to put 10% of their funds into home loans at a fixed rate for 10 years which is beyond the average home loan period . Perhaps the 12% plus is to high a figure for contribution which effectively stops saving for a home

Mart
October 24, 2024

Spot on Alan but the solution simply won't happen will it ? Just as turkeys won't vote for Christmas our politicians (of both sides) won't risk alienating the bulk of voters (especially after the result of the Voice which similarly proposed to "do the right thing"). You could also edit the "half of Australia’s homeowners are locked in a wealth-creation partnership with a bank" line to subsititute the word 'homeowners' with 'politicians'' and increase the percentage figure (contrast that with the amount of shares the typical pollie owns). And I laughed out loud when I saw the Vic Labour government proposal this week to allow 20 story apartments in suburbs such as Brighton, Malvern, Toorak, and Armadale "to promote more affordable housing"......

John
October 25, 2024

Most Australians are homeowners, so they want prices to rise. Self-evident truth. So, legislate and regulate to make it near impossible to get a home loan. To sustain profits, banks would then have to lend for more productive purposes, like innovation and manufacturing. Then wait 20 years for the majority to become renters, through inability to borrow. Government could then appease the new majority by banning negative gearing and applying CGT to the family home, along with death duties and inheritance taxes.. Such draconian policies are not saleable now, but they will be, once most of the population become renters. There won't be much complaint from the rational, because most Boomers will be dead in 20 years, and their $4 trillion will have been inherited. Boomers heirs will have spent their whole education being infected by the woke mind virus, so they won't complain. Problem solved. Just not for 20 years.

Claudia
October 26, 2024

So who is going to provide all these rental properties? Not the private sector that's for sure

Dudley
October 24, 2024

"Why has nothing worked to fix Australia's housing mess?":

Because small savings interest rates and taxes on savings, especially the imaginary ('inflationary') part, make Save -To-Buy uncompetitive with Borrow-To -Buy, resulting in:
. a Borrowing 'Arms Race',
. Escalation of Home Prices (increasing faster than savings),
. in Brought Forward Buying, and,
. smaller number of occupants per home, and,
. a Debt Mountain.

Dudley
October 24, 2024

"Big bank lobby urges reduced interest rate test for first home buyers"
https://www.afr.com/companies/financial-services/big-bank-lobby-urges-reduced-interest-rate-test-for-first-home-buyers-20241023-p5kkjb
"boost borrowing capacity and allow more people to buy properties"

Load 'em up, shoehorn 'em in, shear 'em monthly, let none escape, ...

Dudley
October 31, 2024

'Allow people to ‘cash out’ of super above 8pc: Grattan' ... 'for housing':
https://www.afr.com/wealth/superannuation/allow-people-to-cash-out-of-super-above-9pc-grattan-20241029-p5km7e

Never mention the antonym of the 'Spend' word. Full tilt into debt.

 

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