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The sorry saga of housing affordability and ownership

The House of Representatives Standing Committee on Tax and Revenue is conducting an inquiry into Housing Affordability and Supply.

This is an issue about which I’ve written and spoken at considerable length for more than 30 years, including a submission to the Senate Economics References Committee’s Inquiry into Affordable Housing in December 2013.

Residential prices outrunning other metrics

Between January 1991 (in the aftermath of mortgage rates rising to an all-time high of 17½% in the late 1980s) and September 2017, Australian residential property prices rose by 313.5%, according to CoreLogic’s now widely-used measure. Over the same period:

  • Australia’s population grew by 29%
  • average weekly ordinary-time earnings rose for fulltime adults rose by 171%
  • the consumer price index rose by 89%, and
  • Australia’s economy (as measured by real GDP) grew by 128%.

As a multiple of average household disposable income per person aged 15 and over, average residential property prices rose from less than 6 times in the early 1990s to over 11 times by the end of 2017 (Chart 1).

Note: ‘Residential property prices’ are the average of median sale prices across the eight state and territory capital cities; ‘average household disposable income’ is household disposable income divided by the civilian working-age (15 and over) population. Sources: CoreLogic, Home Property Value Index - Monthly Indices; ABS, Australian National Accounts: National Income, Expenditure and Product, March quarter 2021 and Labour Force, Australia, July 2021.

For the roughly 3.2 million Australian households (out of a total of almost 4.5 million) who owned at least one property – and especially for the almost 750,000 Australians who owned at least one investment property – at the beginning of this period, this dramatic escalation in residential property prices was unambiguously a Good Thing.

For the additional 2.2 million Australian households who managed to become homeowners during this period – and again, especially for the just under 2.2 million individual Australians who by the end of it owned at least one investment property (and even more so for the 600,000 or so who owned two or more investment properties) – this huge rise in property prices undoubtedly made them financially better off.

Between the December quarter of 1990 and the September quarter of 2017, the value of household wealth held in the form of residential property rose by almost $5.7 trillion dollars – or 708%. Even after offsetting the $361 billion increase in mortgage debt over the same period, the net value of wealth in the form of residential real estate rose by some $5.3 trillion, or 680%, over this period.

Renters and young people left behind

But for the 1.1 million Australian households (almost one-quarter of the total) who were living in rented accommodation at the beginning of this period – a number which by the time of the 2016 census had risen to almost 2.6 million (or almost 31% of the total) – none of this eye-glazing increase in wealth came their way. The amount they paid in rent increased from $5.7 billion in 1990-91 to $46.4 billion in 2016-17 – an increase of 713%.

Among this almost one-third of Australian households were people who, at the beginning of this period and as it continued, would have expected to have been able to step on to this wealth escalator – only to find that they couldn’t.

Between the 1991 and 2016 Censuses, Australia’s home ownership rate fell from 68.9% to 65.5% - the lowest it has been since the Census of 1954. But for people aged between 25 and 34, the home ownership rate dropped by 11 percentage points between 1991 and 2016, to a lower level than it had been in 1954, indeed to only 3 percentage points above where it had been in 1947 (Chart 2).

Sources: ABS, Census of Population and Housing: General Community Profile, Australia, 2016 and Historical Census Data; Judith Yates, "Explainer: what’s really keeping young and first home buyers out of the housing market", The Conversation, 12th August 2015, and personal communication.

For people aged between 35 and 44, the home ownership rate dropped by 12 percentage points, to a level just 1 percentage point above where it had been in 1954. Even for people aged between 45 and 54, the home ownership rate at the 2016 Census was 3 percentage points lower than it had been at the 1961 Census, and 9 percentage points lower than it had been in 1991.

Hundreds of thousands of would-be first home buyers – a group for whom politicians of all persuasions routinely profess profound concern – were effectively squeezed out of home ownership by cashed-up immigrants and, even more, by investors able to take advantage of more readily available credit and more generous tax breaks.

The share of housing finance going to first home-buyers fell from over 20% in the mid-1990s to just over 10% by 2003, and then, following a brief recovery during and after the global financial crisis, fell back down to less than 11% again by the first half of 2017. Meanwhile the share of housing finance going to investors climbed from less than 10% in the early 1990s to over 40% in 2003, and was again back over 40% between mid-2013 and mid-2015, and in the latter part of 2016 (Chart 3).

Sources: ABS, Lending Indicators, June 2021, and Housing Finance, Australia, November 2018.

Prices can fall when policies change

Then, after a series of steps by the financial system regulator APRA to curb some of the more egregiously risky forms of lending to investors that had mushroomed in the first half of the past decade, stricter enforcement of rules pertaining to foreign investment in established properties, and perhaps also in response to expectations that the tax preferences enjoyed by residential property investors would be scaled back in the event of a Labor victory at the federal election due in 2019, residential property prices began falling in Sydney, Melbourne and to a lesser extent Brisbane.

Between September 2017 and May 2019, residential property prices fell by an average of 8.6% across Australia. They fell by almost 15% in Sydney, and by more than 10% in Melbourne – more than they had (in nominal terms) in either city in the recessions of the early 1990s.

Those declines were ruthlessly exploited by the Coalition parties, and by property interests, as ‘evidence’ of what would occur if Labor were to win the 2019 election, and implement its commitments (which it had also made at the 2016 election) to scrap ‘negative gearing’ for all but newly-built investment properties and to reduce the capital gains tax discount – something the Government could do knowing that the number of voters who believed that they benefited from continually rising property prices greatly exceeded the number of voters who saw themselves as ‘missing out’, or losing.

And after a brief revival in the aftermath of the Coalition’s largely unexpected victory at the 2019 election, the onset of Covid-19 in March last year initially prompted a renewed decline in property prices, and widespread speculation (including by all of the major banks) that double-digit percentage declines could be in the offing.

As always happens in Australia whenever it is feared that property prices might fall, governments at all levels and of both major political persuasions moved heaven and earth to ensure that they didn’t. State Governments committed at least $2 billion over two years, and the Federal Government $680 million, to expanded schemes of cash grants or stamp duty concessions to first time buyers. And (admittedly for reasons other than propping up property prices), the Reserve Bank slashed interest rates to new record lows.

Governments to the rescue

And as it always does, it worked. Generous cash grants and tax breaks for first-time buyers ‘brought forward’ demand, funneling it into a relatively short period and allowing those who were able to get to the front of the ‘queue’ to pay more for the homes they bought than they otherwise would – the value ending up in the pockets of vendors or the profit margins of builders and developers. Strongly rising prices then attracted the attention of investors, who could then capitalise on the eagerness of banks and others to lend at record-low interest rates.

Although ‘negative gearing’ isn’t as attractive a strategy as it once was – given the decline in interest rates – the most recent data from the Australian Taxation Office shows that over 1.3 million individual taxpayers (12% of the total) were still doing it in 2018-19 (Chart 4). They, moreover, are disproportionately high-income earners: 22% of all taxpayers in the top tax bracket (that is, those with taxable incomes in excess of $180,000) were negatively-geared property investors, compared with just 8.6% of those with taxable incomes of $180,000 or less.

Source: Australian Taxation Office, Taxation Statistics, 2018-19.

And data from the banking regulator APRA suggests that mortgage lending standards are again beginning to decline – albeit not yet as egregiously as they had done before 2015. The proportion of new loans being made on interest-only terms has crept up from less than 16% in the last quarter of 2018 to 19¼% in the first quarter of this year. The proportion of new loans being made at loan-to-valuation (LVR) ratios of 80% or more has more than doubled, from less than 14% in the first half of 2018 to over 31% in the first quarter of this year.

Some of that can be explained by the increased proportion of loans going to first-home buyers, who typically have smaller deposits than those borrowing for the second or subsequent home – but not all of it. The proportion of new mortgages being written with LVRs of 90% or more has risen from 6½% in the middle of 2018 to 10½% in the first quarter of this year.

Australia is by no means alone in experiencing an unexpected resurgence in residential property prices in the aftermath of the pandemic.

It’s happening almost everywhere around the world – including in countries which hadn’t seen rapid growth in property prices over the previous two decades, such as Germany. Property prices have more than twice as fast in New Zealand over the past 12 months than they have done on this side of the Tasman – in part because the New Zealand subsidiaries of the Australian banks relaxed their lending standards much more (in response to very strong demand from investors) than they have thus far done here. That’s prompted a strong regulatory response from the Reserve Bank of New Zealand – and a much more dramatic curtailment of tax preferences for property investors than the Labor Party had contemplated for Australia.

The increase in home ownership rates which was achieved over the first two decades of the post-war era – culminating in a peak of 72.5% at the 1966 Census – occurred despite Australia’s population (and in particular the populations of its largest cities) growing at a much faster percentage rate than they have done over the past two decades.

Boosting demand rather than supply

That was possible because, throughout that period, the housing policies of the Commonwealth, state and local governments focussed on boosting the supply of housing – both by building a lot of housing themselves, and by facilitating the construction of housing by the private sector. As a result, despite the strong growth in the ‘underlying’ demand for housing, the ratio of house prices to average incomes remained relatively steady at around three times.

But, starting from 1963, when John Howard (as President of the New South Wales Young Liberals) managed to persuade Sir Robert Menzies to promise cash grants to first home buyers at that year’s federal election, the emphasis of government housing policies has gradually shifted away from boosting the supply of housing, instead to inflating the demand for it.

The (almost inevitable) results of this shift in housing policy have been that house prices have risen to, typically, six or seven times annual disposable incomes; that it now typically requires two incomes to accumulate a deposit and service the mortgage required to buy an average-priced home; and that (as noted earlier) the home ownership rate is now lower than at any time since the mid-1950s (and possibly earlier).

Indeed, it is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their ostensible objectives.

Far more votes from property owners

For all the crocodile tears which politicians of all persuasions routinely shed about the difficulties facing those wishing to get their first foot on the property ladder, deep down they know that there are far more people who already own at least one property (and who therefore have a very strong interest in policies which result in continued property price inflation) than there are who don’t, but who would like to (and who would prefer, at least until they succeed in their aspiration, policies which would restrain the rate of property price inflation).

And, sadly, there’s no reason to think that political calculus is going to change. Nor, therefore, are the housing policies which have resulted in created the housing system which Australia has today.


Saul Eslake is an Economist and Principal of Corinna Economic Advisory. This paper was a submission to the House of Representatives Standing Committee on Tax and Revenue’s Inquiry into Housing Affordability and Supply, 25 August 2021. Published with permission of the author.


Young Hard Saver
October 11, 2021

Saved my butt off last 15 years, worked 2 jobs 6 days a week. Got a degree at a prestigious university. Never spend on wants, only needs. Never been to a hair dresser, wears hand-me-downs, no take away, never travelled, etc. Saved a large deposit working myself to death, and when I tried to buy a house, policy after policy has been giving me heart attacks. Been trying since the end of last year to buy but competition is too strong. I'm looking at cheap outer suburbs yet still impossible. I was too slow, need to have bought in 2019. The window is closing and they are still bringing in more policies to finish me. Prices have shot to the moon and then I hear they're bringing in worse policies again, I just want a house for my family, I've done everything my parents said. I saved every penny, I got that degree, and now I'm just sick at a young age, pain everywhere, stress killing me from the under paid (thanks to the skilled migrants program) professional job and physically damaged from my second more physical labour job. Arthritis in early thirties, chronic health issues, feels like I'm dying. That's what you get for trying your hardest to buy a house from just hard work. I was born too late. Savings have been destroyed by the QE inflation, and no assets to offset my large losses. A lesson learnt the hardest of ways, knowing I've been working hard and sacrificing for nothing. 15 years of busting my butt for nothing, and now my health is going downhill at a young age.

October 12, 2021

I feel your pain.

Mic Smith
October 23, 2021

Yeah and quietly work hard and honestly, save and no politician seems to care. What makes it worse is all the media wants to talk about is a bunch of trendy social issues. 

November 13, 2022

Im 43, my wife 38, 2 kids 7 and 10, we earn $180k between us in Brisbane, have a $140k deposit, and cant afford a house that doesnt need to be torn down unless we move more than 45 minutes from our kids school and sports.

12 months ago prices were around $500k to $600k. Now the cheapest are $900k, and thats for a dump. I will not give my vote to either party from now on until someone stops this. Its not fair on my kids!

October 03, 2021

Buy what you can afford.......start with one bedder and build from there

October 03, 2021

Are you aware of what's going on around you? Do you know who are those people priced out these days? It's not just the waitresses and childcare workers but also those well educated and qualified professionals in their 40s with family income 200k-300k. The problem is they don't have rich parents. Are those families expecting too much for wanting to live in a 3 bedroom house in a reasonably good school catchment?

In all honesty, how many of you have helped your children with house deposits? I know a couple with $150k family income bought $3m and several couples with approx. $250k family income bought $4m houses. All with parents' help. Their parents' houses are now worth $7m, $8m.

The way things are going, I will have to help my kids in the future too. My kids have no interest in money professions. They want to be engineers and build things, or scientists who cure cancers. With their intelligence and maths skills, frankly speaking, I think it would be a waste of talent if they end up working for banks and financial engineering products. I have nothing against bankers. Just thought it would be a tragic loss to society if all intelligent people need work in banking just so they can afford a house in north shore.

October 04, 2021

? And each time you try to step up a notch , you get whacked with stamp duty ? ?

October 02, 2021

Maybe I’m naive, but I don’t believe politicians can defy market fundamentals forever. The longer they let the bubble inflate, the bigger the bursting. If they just started explaining to people that having a home whose price goes up doesn’t make you richer, they could start to develop policies to divert all that borrowing into far more productive spending. Mortgages are dead money, you can’t spend your home price and enjoy that wealth unless you sell up and rent. Why people want to put the last cent of their income into a mortgage is beyond me. Imagine the demand, jobs and incomes that would be created if all that money spent on mortgages was spent on goods and services instead. Australia would feel a far richer place in my opinion. I’m not sure if politicians are looking after voters with their policies to pump up property prices, or just themselves.

October 02, 2021

A sad, sad indictment of our political system vested interests and 'let them eat cake' mentality. We are creating a huge underclass and trite, unsupported 'we did it, why can't they?' comments are unhelpful and indicative of those that have, scoffing at those that do not. Those that have are laughing after Covid (apart from the whinging about the recent pullback) - super balances are looking healthy, property prices are sky-rocketing and all is well. For those that have not, rents are at obscene levels in many cities, making saving for a deposit but a dream, employment is more uncertain there is a mountain of worry for many. As Saul has said, the chance of this government implementing meaningful policies to address the housing issue and alienating those that have electors is remote indeed. Shame on our society.

October 02, 2021

Why is it that no-one talks about our tax system and how it supports property speculation and punishes workers and businesses. What if a broad based land tax to replace wage and company tax were introduced over time. Speculation diverted from property into production and possibly manufacturing.
Too many involved in property for this to ever be politically feasable. Maybe the next big crash in a few years time will bring it on.

Peter Symonds
October 02, 2021

The biggest factors are interest rates and easy credit. Imaging if interest rates went to 7% now, there would be plenty of houses up for sale. In my area the central coast of NSW at Macmasters Beach a house which sold for $1mil in 2020 just sold again untouched for $2mil. The Fed has a lot to answer for.

October 01, 2021

As I suggested under Graham’s editorial on similar topic, why not resurrect the past policy to allow first time owner occupiers a deduction on home purchase interest?
Waiving the “income generation” test would be appropriately targeted and genuinely assist those for whom politicians (of both persuasions) have feigned “sympathy and support”. Instead, when doing something (anything) raises objection from some quarter …. Have another inquiry!

Trevor G
September 30, 2021

Government policies:
Stabilise population at current level;
Make older people pay their way ( include family home in pension asset test);

September 30, 2021

Leave old people alone. Look at wealthy people. They’re not the same!
Just stop negative gearing and stop investors buying existing property this just inflates price of existing stock.
Redirect nvestment to more supply and speed up land released for urban renewal

September 30, 2021

Older people have paid their way. They did not take overseas holidays, buy new cars/clothes, eat out regularly. They bought furniture in their 30s, not 20s. Most struggled all their lives to pay for their one asset, the home. Many have children still living at home. If you include family homes, those homes will have to be sold to pay for the basic essentials of living, and parent (age 80) and child (age 60) will then be renting or on the public housing list. Why not work and add to the productivity of the country instead?

September 30, 2021

Nothing special about this, the rest of us do the same. Gen X and everyone else after them will be the old people one day and will also have paid their way. The laws of money are the same for everyone.

October 03, 2021

This shouldn't be an us against you debate. Rather a debate about government policies and we need policies that are balanced and for common good. A question: when the oldies, led by the Wilsons, campaigned against the abolishment of franking credit where were you youngsters? Frankly speaking, I am surprised there is no protect on the streets about the house price.

Trevor G
October 06, 2021

I don't have anything against older people. What I was saying is that if the population of Australia was stabilised at its current level (something that apparently no one is willing to consider) than the result would be an ageing population so it follows that older people would have to pay their way. Currently the idea seems to be to keep pumping up the population so that there are enough younger workers to fund our social security budget.

Jeff O
September 30, 2021

Agree - largely a political issue of insiders/self-interest v outsiders/minorities in the long run.

The (private and public) benefits of housing tenure - for outright homeowners, those paying off a mortgage as either an investor or owner-occupier are way larger than those renting on lower incomes without the bank of mum/dad or a bequest to look forward too.

I doubt that Australians will ever have the political leadership for a dialogue around the national/public interest of home ownership. Nor governments that will provide sufficient public housing.

If i was a young renter with a minimum deposit/ bank of mum/dad, I'd be marching in the street - at least about stamp duty.

FHBs need a bigger loan for a longer term and a first home buyer is effectively working for the state govt paying off the stamp duty, rather than rent to private/public landlords for the first few years after moving in! Is that fair?

Andrew Smith
September 29, 2021

On 'Australian residential property prices rose by 313.5%, according to CoreLogic’s now widely-used measure', are these nominal prices or real value; what is CoreLogic's formula, 'hedonic'?

Potentially WWIII can break out at dinner parties to what follows, but significant difference, i.e. if one applied a 7% benchmark to cover costs by doubling the property prices each decade, the original investment in property would match or be round about the present value.

However, holding costs on shares are significantly lower and pay dividends, so it does seem more about tax planning for high income negative gearers than productive investments?

Beware amateur investors using property as an investment based on sentiments, also keeping in mind significant baby boomer 'bubble' ownership and start of a demographic transition in the permanent population; much of our population growth has been 'froth on the top' i.e. long term temporary churn over round international education, temporary workers and NZ'ers.

Backgrounded by Australia's relations with China and already waning interest, international education is not guaranteed to return to previous high levels, hence, the NOM too; backgrounded by ageing and later declining Asian populations (one would bet that China's has already peaked before the previously expected 2025... India in a decade of few)

Finally, one is sceptical of not just property data, but as to how well apartment data is collated and analysed as much activity is private but the CBD and inner city apartment (guess surplus) markets are also opaque, yet open to renters from property too.... that could breach the wall.

My advice to youngsters, like friends did, rent then buy an 2 bedroom apartment (choices galore these days) and save for a deposit before jumping prematurely into the property or house market.

September 29, 2021

Overall a fair assessment but some assertions are open to debate:

1. No figures in an article full of statistics to support the assertion that "cashed up immigrants" significantly contributed to excessive growth in housing prices - and as far back as from 1954! More likely is the major stimulus to growth and living standards fuelled by post-war immigration.

2. On its face this is accurate: "disproportionately high-income earners: 22% of all taxpayers in the top tax bracket (that is, those with taxable incomes in excess of $180,000) were negatively-geared property investors, compared with just 8.6% of those with taxable incomes of $180,000 or less". Higher (180k+) income earners rationally seek to maximise tax sheltering so the proportion is no surprise. Though I would hazard to say that the actual number of negative gearers on incomes lower than $180k would be a significant multiple of the higher income earners using negative gearing. You would also find that the reasons a lower income taxpayer buys an investment property are less about tax immunisation and more about providing a retirement income stream.

September 29, 2021

"cashed up immigrants"- on that the net immigration for the last months has been zero.

September 29, 2021

Look at the extent of property investment among our federal politicians of both political persuasions in both Houses of Parliament and compare it with their commitment to investing in Australian equities. You will find that this meets the definition of vested interest in property speculation.

At least Australian shares are productive investments in the Australian economy that create employment but our politicians are quite happy to create the tax environment and property market conditions from which they themselves benefit very nicely. Don’t expect this to change anytime soon.

Greg Hollands
September 29, 2021

Saul argues what has happened over the past 30 years and nothing has changed. But he omits a couple of very important changes. Whilst the younger generation scream blue murder that they are left behind and unable to get into their own home. Perhaps, but their expectations are so much higher. Why do you think that Sydney, Melbourne et al, expanded into the outer suburbs in this period? Well, the answer is reasonable obvious - that was where the cheaper land was. Younger buyers bought land further out where they could afford, and gradually built up their equity and many moved closer in when the economics worked in their favour. Today, younger people want to own an inner city property ( ie, code for higher value and expensive property) after they have taken 5-6 years to complete a 3 year degree - or changed their mind about what they wanted to study. After of course, the obligatory "gap year" spent over seas and living large without saving that much money. At the end of that process they say, why can't I buy a home - I'm being discriminated against! Another factor present is that apart from spending lower funds on a property further out, the general picture was of a house that was pretty basic, and over a period of time the furnishings came along with carpet etc. Not so these days, we all want a 260 - 300 sq mar home - fully furnished and carpeted, along with 2 relatively new vehicles in the garage. Give me a break! How about this generation save their 30-40% deposit, tone down their expectations and just get on with it. It was just as hard for our generation, as it was for the generation before, and will be for future generations - they aren't making any more land! Check out the sign in the estate agent's window - the old gent with a beard to his feet - still waiting for land prices to go down. ( Now that did occur in Sydney for brief period in 1942 when the midget submarine attack was still fresh in peoples minds). So, get a grip, knuckle down and you too can own your own house!

Ramon Vasquez
September 29, 2021

Perfect points, expectations have been inflated. Ramon ,

September 30, 2021

Long on anecdotes and cliches Greg, presumably based on your perception of what the younger generation wants and 'how it just is'. Short on actual hard facts or assertions that can be corroborated.

September 30, 2021

Ahh the 'smashed Avo' sentiment. As the article points out house price growth has exceeded wage growth meaning coming up with a deposit takes much longer than it used to. I would challenge your 25 year old self to save a deposit and buy a house within an hour of Sydney's CBD in today's market.

October 21, 2021

My son lived with us until his late 20’s and saved about half the price of a newish flat that he has bought. The estate agent was astonished and said that most people his age can’t put a fifth of that amount as a deposit.
The house I have cost about 3.5 times my annual salary (30 years ago) but the interest rate on loans was about 17%. My son’s flat was about 7 times his annual salary but the interest rate is about 2%.
The last figures I saw about overseas buyers in the Sydney housing market was that it was about 3% of the total buyers and that property scarcity was in part the result of young male and female would-be buyers wanting their own places (ie 2 properties), whereas a generation before, they were in the market for a property only when they married (ie 1 property).

Brian Cabot
September 29, 2021

Excellent article. Even those of us who own property can appreciate the way that high house prices drain so much of peoples' lifetime incomes into what are essentially lifestyle assets, at the expense of other sectors of the economy (entertainment, travel, education....) and reduce the amount of money available for saving, and investing in productive businesses and true wealth-creating assets to fund comfortable retirements.

September 29, 2021

A concise history of how government policies pushing up Australian house price. Thanks Saul. A minor point. I see no mention of Bank of Mum and Dad - to what extent, if any, has it affected the house price?

“The proportion of new loans being made on interest-only terms has crept up from less than 16% in the last quarter of 2018 to 19¼% in the first quarter of this year. The proportion of new loans being made at loan-to-valuation (LVR) ratios of 80% or more has more than doubled, from less than 14% in the first half of 2018 to over 31% in the first quarter of this year. ” - Hello APRA, are you still around?

For retirees, ignore all the articles from fund managers. Those guys are very confused and they have to make living too you know. The investment strategy in this country should be very clear investment strategy: buy properties and bank shares. These are the two sectors will always win. No matter what.

September 29, 2021

"These are the two sectors will always win. No matter what." until they do not!

Granted we have a government sanctioned oligopoly with out big 4 banks (im being generous; they are building societies really), being a protected (by the tax payer) species.

And all the revenue they generate, are extracted from australians by way of gouging, ie by being value extractors.

Lets step up our game vis-a-viz monopolistic pricing powers, lets get ASIC onto the case and legislate that no 2 companies can control more than 50% of the market share, this will unleash the animal spirits of competition!

Let us begin NOW!


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