Today’s minority is tomorrow majority.
Today’s minority is tomorrow majority.
Last week, Terry Ryder once again stressed the argument against issues of affordability, citing anyone seeing a ‘crisis in affordability, needs to ‘get back to the drawing board’ and ‘stop wasting everyone’s time.’ According to Mr Ryder – we need do nothing to address housing affordability and the only participants pushing prices higher are emotionally driven second time buyers who get a little ‘wallet happy’ when purchasing their ‘dream’ home.
Although Australia may still possess a good proportion of owner occupiers to renters – enabling some in the industry to close their eyes to distress calls coming from the increasing numbers locked out all together, both state and federal Governments would be foolhardy to ignore the downward trend in ownership and the reducing pool of first home buyers.
What may seem in some people’s eyes, nothing more than a ‘molehill’ on a well trodden historical path, is slowly threatening to evolve into a future generation’s mountain. If we sit back today and tell everyone to ‘smell the roses’ we risk leaving our grandchildren to inherit a problem unable to be ignored, prevented or for that matter, fixed.
You don’t need to look far for the evidence. With each census released the level of home ownership slides downwards, the numbers in mortgage stress or struggling to service rising yields increase, not to mention the astronomical rise in residents living in ‘rooming’ accommodation – up fourfold since 2006. It’s important not to dismiss the factors associated with the above trends because the growing problem - wherever you choose to lay the blame - is undeniable.
It would also be foolish to ignore – as some would have us do - lessons we can reap from the far larger ‘housing crisis’ occurring in Europe and the USA. We have fared better for a number of reasons; however this doesn’t dismiss the flaws associated with high levels of debt financed ownership.
Australia still has a comparatively low number of mortgage defaults, however, the rising numbers suffering ‘mortgage stress’ are enduring their own ‘crisis’ trying to balance the family budget. Once again this is broadly evidenced in ABS data - which goes to substantiate other data proving that housing is increasingly used as a buffer to meet welfare needs, with greater numbers dipping into the pot of reducing equity and reaching retirement whilst still servicing mortgage repayments. Once again, you don’t need to look far for the evidence – I have cited the data in previous articles I’ve written for Property Observer.
Should our economy go belly up, there is little protection against the investment risks associated with this trend. In such a circumstance, the precarious nature of the situation would be fully exposed and felt by a majority – not just the ‘minority’ we’re being told to ignore.
Policies such as the FHOG and negative gearing were put in place under the guise of ‘aiding’ affordability and increasing the supply of rental accommodation. However, based on the data above they are, to a large extent, failing to address either. Proponents arguing that the First Home Owners Grant and subsequent GFC First Home Owners Boost did ‘nothing’ to fuel an unprecedented boom of price growth during 2009 because it only applied to a ‘minority,’ show a degree of ignorance on the broad effects of market influences.
Certainly, first home buyers are a minority; however an increased surge at the bottom of any market automatically spurs momentum across the buying landscape as a whole. The snowball effect witnessed in 2009, was a result of the First Home Owners ’Boost’ stimulating a ‘buzz’ of excitable market activity, along with unnaturally low interest rates, and a consequential jump in the average size of home loans across all price points. In short – it was fuelled by an impulsive snowball of cheap credit.
It encouraged first time buyers to ‘rush’ in – many opted for new homes and off the plan developments for which in excess of $30,000 was often ‘gifted.’ Consequently they purchased into a bubble, and as soon as the incentives ended, prices in the new estates plummeted. These are the estates Mr Ryder correctly points out to be comparatively ‘affordable.’ Of course they are – few want to live there unless there’s a large dangling carrot ‘clouding’ the way.
I’m still coming into contact with vendors who – riding high on the wave of momentum - purchased into the sparsely facilitated fringe suburbs and four years later continue to fund a mortgage worth more than their principle place of residence. They are essentially ‘locked’ into an estate, sparse on amenities, unable to sell because buyers not buoyed on by the momentum of a rising market and Mickey Mouse grants, take the time to ‘think’ before they buy. There is no activity to motivate growth or build a pool of equity, and consequently a proportion of vendors are well and truly ‘stuck’ in their own housing nightmare.
The other ‘minority’ argument citing investors as only being a small ‘uninfluential’ 30 per cent proportion of activity– is once again somewhat misleading and only applicable if you lump Australia’s entire investment market under one ‘dismissive’ umbrella. Price rises caused by this demographic occur because 93% of investor transactions are in the highly sort after inner-suburban localities where most people need and want to live for work purposes. Consequently, the number of renters servicing unprecedented yields in established capital city locations - up 49.2 per cent over the previous five years, - now frequently exceeds 50 per cent.
Furthermore, Australia wide, 58 per cent of apartments are owned by investors. Break this data down to a state by state ‘capital city’ level and the investor owned percentage of inner city apartments rises closer to 70 per cent and in some states exceeds even this. Apartments are broadly considered to be the stepping stone to enable first home buyers to get an initial foothold. Therefore, investors and first home buyers are generally targeting the same reducing pool of established stock. Two ‘minorities’ competing for the same properties, in the same areas, at the same price points and the problem no longer looks quite so ‘minor.’
This is by no way an argument to reduce the amount of investors Australia fosters, but rather reduce competition in established ‘home buyer’ markets (something negative gearing in its current capacity fails to do) and encourage investment in outer suburban and regional townships. In doing so, we not only increase the supply of affordable accommodation, but increase pressure to fund these regions with public infrastructure - most importantly, train lines and other essential community facilities which are vital to stimulate growth.
This was principally why the urban ‘sprawl’ was successful back in the 1800’s when Melbourne (a city ahead of others in this regard) was in the initial stages of outer suburban development. However, with the onset of the motor car in the 1950’s it was all too easy to excuse the need to extend public transport systems further outwards and consequently, following a population boom, we’re now gridlocked with over congested inefficient transport arteries. Regardless of whether people ‘choose’ to commute by car or not - I have yet to meet one buyer who is happy locking themselves into a car dependant lifestyle.
There is not one ‘quick fix’ answer to the question of affordability or how to tackle very real and growing crisis. However, boxing it up under the guise of a ‘minority’ or dismissing subsequent commentary as an exaggerated headline grabbing indulgence would be overwhelmingly short-sighted and foolhardy.
For millions of existing owners, their future security is dependent on maintaining the value of their properties and utilising the existing pool of equity – however for a growing proportion of young and old Australians, the cost of accommodation is becoming unmanageable even on the average wage.
It’s a 21 century quandary and getting the balance right will take time and a number of long term policy changes – however, the issue cannot be ignored. A few months ago in April, the Australian Housing and Urban Research Institute, published their own analysis of the crisis in a report - funded by the Government - entitled ‘Sustaining home ownership in the 21st century; emerging policy concerns’ In it they pose a number of possible solutions citing;
“We believe there is clear evidence that home ownership will prove unsustainable for increasing numbers of Australians in the 21st century.”
I too believe there is clear evidence of a growing crisis in housing affordability – and it’s one which requires an attitudinal shift from the view that it’s simply limited to a ‘minority’ market.