You might have noticed that I’m a little concerned about the housing affordability issue at the moment. I think I’ve gone so far as to suggest it as one of Australia’s most critical problems that will do enormous damage our community in the medium term.
And, insincere expressions of concern by politicians who just use it as an excuse to bash immigrants, or by the real estate industry who use it as a cover to bully governments to give them more of what they want (which nobody but an idiot would think is lower prices) aside, it’s felt like very little genuine push for reform on the issue has made it anywhere near our advertising-dependent newspapers. Or the national broadcaster that so often simply parrots them.
If this man is happy, first home buyers probably won’t be
So I was glad to see yesterday that a group of angry young people have set up Prosper Australia, to draw attention to the plight of this houseless generation – and that it’s finally being reported. Steve Keen supports it. GetUp! might well pick up the campaign and run with it.
Now, I don’t think that the immediate proposed action – a purchasing strike – will do very much. For one thing, the people promising to strike aren’t really able to buy a house at the moment anyway. (I will protest against the high price of Ferraris by not buying one!) For another, if that’s the only reason that house prices drop, then they’ll lunge upwards as soon as those people start buying again.
But I do think the noise being made on the issue is vital, because we’ve created a serious crisis for this and future generations that’s only getting worse.
What can we do?
It’s silly to blame it on immigration or population growth – this is an enormous increase in prices well ahead of any increase in population. Nor is it – as the real estate lobbyists self-interestedly suggest – slow approvals for subdividing ever more remote packets of land. It’s to do with the amount of borrowed money to which people have access in order to bid each other up with at auction, and the number of people with enormous access to such finance via equity in their already inflated homes outbidding homebuyers to buy their own investment properties. The numbers of people with multiple houses have surged at the same time as the house prices – hardly a coincidence. In fact, it’s a vicious circle – the more the prices go up because of investors, the more investors want to get in on this cash cow and the more equity they have so the more they can borrow so the more they push up prices.
So that’s what government needs to tackle. It needs to take into account the people who’ve just jumped on the property ladder at the present inflated prices who will be affected by an actual drop in prices in the sense of negative equity – but it needs to resist their calls to keep the market as inflated as it was when they hopped on. It needs to stop the ponzi scheme and try to minimise the damage to the people who’ve been stuck with it. It doesn’t need to protect investors – part of the reason why all this capital is being stuck economically uselessly in housing is because investors think it’s safer than the stock market. Disabuse them of that misconception.
Raise CGT to something closer to income tax – why should you work hard all day and be taxed at a certain rate where somebody just sitting on property and doing nothing earns more and is taxed less? Consider a higher CGT rate for property investments that aren’t adding to the housing supply (but of course maintain the zero CGT rate for a person’s primary residence). Remove negative gearing. Get rid of inflationary grants like the FHOG that simply go straight to vendors and in fact, by increasing the amount people can borrow, inflate prices by more than the value of the grant. Increase renters’ rights at the expense of landlords’, so that becoming a landlord is a less attractive proposition.
Won’t that increase rents? No, because it’ll enable a whole generation desperate to buy a home presently stuck renting to escape the rental market, reducing demand.
Make no mistake, this is a real problem, and if not addressed we’re going to become a nation of landlords and tenants, with all the social problems associated with massive inequality.
Let’s hope GetUp! and Prosper Australia can make the waves that are needed. They’ve already achieved one important coup: the Real Estate Industry of Victoria is vigorously opposed to them. That’s a definite good sign.
I’m not convinced this is inherently bad. There are numerous countries in Europe (eg: Switzerland) that are very much “nations of landlords and tenants”, and they don’t seem to have “massive inequality”. Tenants rights aren’t significantly more generous than they are in Australia, either.
Personally I can see both sides. As someone who has spent a lot of time living in many different places over the last decade, I much prefer 6 month leases, and would never take one longer than 12 (this was a problem when we were living in Switzerland, as their typical lease is more like 2 years, and 5 year leases are not unheard of). Indeed, I remember when I first moved down to Sydney in 2002 or so, and finding someone willing to offer a 6 month lease was damn near impossible (everyone wanted at least 12).
I can certainly see why some people would prefer longer leases, but as a landlord I can also see why a 5 year lease would pose problems when borrowing costs can change dramatically in that timeframe. Not to mention other situations like coming back from wherever else they might be living – like I’ll be doing later this year – and wanting their house back to live in.
“It’s silly to blame it on immigration or population growth – this is an enormous increase in prices well ahead of any increase in population.”
Actually Jeremy, as i posted in another thread, the start of huge increase in house prices coincides almost exactly with the doubling of our rate of immigration and the significant increase in our national growth rate.
The “silly” part is thinking that population growth is the only factor. Equally silly is thinking that there is no link between Australia having one of the fastest growth rates in the world and us having the highest average house prices in the world.
Agree with the rest of your post heartily though..FHOG and negative gearing in particular.
I reckon its also worth considering how much impact a decade of ‘nothing up front’ loans and easy credit for people who can’t really afford to pay it back has had on boosting house prices to unsustainable levels.
And possibly the role that credit cards, a sense of entitlement and the need for instant gratification has had on many young peoples ability to save, borrow wisely and manage their finances properly.
“the Real Estate Industry of Victoria is vigorously opposed to them. That’s a definite good sign.”
The real estate industry is also vigorously opposed to limiting population growth.
If the inflation in the market is due solely to immigration, there will be no impact if we get rid of the FHOG or increase the CGT!
drsmithy, I believe Switzerland is somewhat of a unique example surrounded by many other countries with good strong tenancy laws. Holland, Germany, Denmark, Austria, France etc all have stronger tenancy laws than Switzerland. Not that swiss laws are that poor, they are fairer than Australia’s – hell, even the UK has better tenancy laws than the old vic.
Also, it strikes me your comment “I’m not convinced this is inherently bad”, is interesting. Ever heard the term rent-seeking?
Switzerland may be “unique”, but the point is it’s an example of the situation not being inherently bad.
I believe all those other nations you list also have lower home ownership rates than Australia.
Yes. Your point ?
When Australia significantly upgrades tenants’ protections, then we’ll be able to start comparing us with Europe.
Regardless, having a home-owning class and a permanent-renting class is hardly an egalitarian society. When homes are only able to be bought by the super-rich and those who inherit homes, how does someone starting off poor ever compete with someone with those advantages?
What’s missing in Australia and present in other countries (a link that compared different countries would be ideal) ?
I’m not quite sure I see your argument. I know several people with $100K+ incomes who do not own homes, nor are ever likely to. I know several more who own houses solely for investment purposes (ie: they have no intention of ever living in them). Indeed, they often specifically say that renting is preferable since a) it’s cheaper and b) it gives them the flexibility to move around and take work wherever it is most lucrative to do so.
Now, this obviously doesn’t apply to everyone (particularly families, though one of those people I mention above is married with children and has lived in 3 different countries over the last 7 years), and I certainly agree that house prices today are preventing people – particularly younger people – from buying their own home (all the homeowners I know, including myself, bought them a decade or more ago).
However, I question your premise that home ownership is necessary for success in life, because that has certainly not been my experience.
“Banking was conceived in iniquity and was born in sin. The bankers own the Earth… if you wish to remain the slaves of bankers and pay the cost of your own slavery, let the continue to create money”
-Sir Josiah Stamp
Look into fractional reserve banking or as it is better know as a giant ponzi scheme.
“I believe all those other nations you list also have lower home ownership rates than Australia.” drsmithy
“When Australia significantly upgrades tenants’ protections, then we’ll be able to start comparing us with Europe.” jeremy
And once Australia upgrades tenants’ protections and recognises that access to housing is a right not a privilege, then we might have a society which can support lower levels of home ownership. There is nothing inherently wrong with a nation of landlords and renters provided the protections are in place so the contractual obligations are fair and equitable and so that the situation doesn’t devolve into ‘rent-seeking’.
..which, in case you have any doubt at all, it has! and which, in case you have any delusions, is a very bad thing for society.
In the suburb where I live the average family shells out 60% of their wage in rent. 60% of their wage to some bastard who sits on his arse and produces nothing and contributes nothing to society. Nothing more than having been there first and having cornered that market… what is my #$*% point you ask?
What’s missing ? Again, a comparison table would be useful.
Also, I’m a bit confused. On the one hand you say there’s “nothing inherently wrong with a nation of landlords and renters”, but then you go on to assert that landlords are just “rent seeking”. You seem to be contradicting yourself.
I think, all in all, I was fairly clear (and not at all contradicting myself) if you both read and understand what I was saying.
Inherent (adj): existing as an inseparable part; intrinsic
Provided (conj): on the condition or understanding (that)
(ie. if and only if)
Situation (noun): state of affairs; combination of circumstances
(ie. though no doubt some landlords may be drivers rather than just unwitting participants in the situation)
Also, a comparison table would be useful but if I were that motivated to find the time I would probably have my own blog rather than just posting the odd opinion… at the generosity of forward thinking people like Jeremy who are kind enough to share their platform. Clearly, you also find yourself in a similar situation.
As a landlord (*wave*) I want to say: ditch our insane rates of stamp duty.
Sure, also ditch the solid-gold bullshit of the CGT benefit, I have no problem with paying my due on profit, but with stamp duty where it is I kinda feel like I’m stuck with property forever. I’d quite like to sell a little flat, for example, because I’d prefer to have my money doing something else – but the dead money hit I’ll take with stamp duty to get that money back into property makes me hesitate… and hesitate.
It makes property investment become a system of infinite accrual. You never want to let any property go if you can help it, and instead use the equity to roll over into more property. I’ve already paid stamp duty to get that! I might as well hold on to it.
It’s not just that property is made so attractive to investors, it’s also that Stamp Duty makes investors so reluctant to ever sell anything.