How the housing crisis is changing the Australian dream

Ross Greenwood speaks to Stephen Anthony, Chief Economist at Industry Super, about housing affordability and how the government and the private sector can work together to increase the assisted housing supply.

How the housing crisis is changing the Australian dream

Ross Greenwood:  Think about this: work, life, money. Now, one of the really important things that you have got to do is to be able to– By the time you have retired, make certain that you have actually paid off your home if you choose to buy a home. Many people these days because of the very high cost of housing particularly in Sydney, Melbourne to a lesser extent, but even other state capitals are now finding that they’re making an active choice with their work, their income, their life.

That is how they basically spend that income and with their money to not own a house at all. Which is in some ways not dissimilar to why many Europeans have behaved over many, many decades. So, the whole point of affordability of housing is a real thing. The problem is, for many Australians, is that they buy their first home later so they end up paying it off even later. If you think that most loans these days go up to 30 years.

If you don’t buy that home until the age of 30, then a more likelihood is if you got a 30-year loan, you don’t pay it off until you’re 60, the end of your working life. Because normally when you have paid off your home it is the period between then and your retirement years or date that you ultimately save and put more money aside for your superannuation so that you can ultimately have a better quality of life in your retirement years.

The issue is now these days many people get to the age of 60, 64, 65, still with a mortgage, still having to work and even increasing of these days work-life-money-life. Even having kids later, means that they still have financial obligations much later in their life. Somebody stopped and thought about this, is the Chief Economist of Industry Super, Dr. Stephen Anthony, who’s written the report looking at assisting housing affordability. It’s a discussion paper. He’s on the line right now. Many thanks for your time, Stephen.

Interview with: Stephen Anthony, Chief Economist, Industry Super

Dr. Stephen Anthony: How are you doing Ross?

Ross Greenwood:  Good, thank you. Those analogies I’ve made, the way in which people are behaving these days as compared with the past, the fact that you need two incomes in a major capital cities these days to really be able to afford to pay off a home mortgage, but then also to have a reasonable standard of living. These are all basic pressures on the work-life-money equation, aren’t they?

Dr. Stephen Anthony:  Absolutely Ross, and you’ve summed up the problem very well. However, I would say that a lot of the issue about affordability is in Southeastern Australia especially Sydney, Melbourne, and maybe Canberra and some coastal regional centres. Outside of that, it’s possibly a little more affordable.

Ross Greenwood:  The only issue is I would have thought in many of those areas where it is more affordable to buy housing, I’m thinking here Adelaide, you actually have the other problem even Perth to a certain extent, Darwin is another one where house prices have actually fallen over the past few years. You’ve got the commensurate problem that either house prices are formed because unemployment has been higher or the wages growth has been especially poor on those places as well.

Dr. Stephen Anthony:  Yes, a fair point. Although, the strongest growth center in terms of economic outcomes has been Sydney. Melbourne, it had a hot property market, but possibly not as strong on economy. It’s driven economic outcomes through our arithmetic population increase rather than rising per-capital living standards. There’s a little finesse in there. I suspect though that a lot of the affordability issue is in that Southeast corner, and a lot of it has to do with policies that have missed opportunities to drive up supply rather than focusing on the demand side of the equation.

Ross Greenwood:  One of the issues you raise in this paper, is a really interesting concept. That is, if you can get say, a 3 or 4% return out of the rentals on an investment property these days, maybe better in some other smaller capital cities, I’m thinking there Hobart, certainly Adelaide, even regional centers might pay you even up to 5 or 6% rental returns. That means that rental return with a little bit of capital growth is a reasonable idea for many of the superannuation funds. You want to average long-term, generally average somewhere between 7 and 8%. So they’re not too far off the mark if they’re seeking to diversify their portfolios, are they?

Dr. Stephen Anthony:  No. That’s true Ross. There are some opportunities there for institutional investors to use their balance sheet to drive up returns as well. Therefore, if you want to add to the supply of affordable housing and social housing, there is a scope there for all governments to pour concession into that mix to drive up those returns to a sufficient level that funds would be interested in investing.

Ross Greenwood:  Because one thing you make an observation, and it’s something that I’ve said for a long time, things like first home by grants they simply don’t work. The reason for that is because anybody is developing a property, anybody is selling a property, is too smart by half. If you’ve got a first-time buyer grant of let’s call it $17,000 the price of new houses only rises by $17,000 because I understand that the person buying can afford it.

Dr. Stephen Anthony:  That’s right Ross and obviously all any tax concession that’s focusing on existing housing doesn’t add to the supply of houses or at least only at the margin. Then we have taxes like stamp duties that lock people into their existing premises or to renovating, when perhaps other taxation arrangements would encourage the transfer of assets between generations and that would be a good thing.

Ross Greenwood:  Then you even say some controversial things here, you say, let’s say for example, “We should encourage work and student visa holders to reside out of property market hotspots.” So that means your big inner-city areas because that’s generally where universities and many of the tertiary education facilities are, to direct all foreign investment in residential property to new buildings only.

Again, that’s not dissimilar to where it is right now. It’s one of these points, but what you’re also saying is to discourage land hoarding by identifying underutilized assets for redevelopment including assisted housing and providing incentives to private land developers to expedite land release. In other words, get the land that’s out there up and going so you can get the supply to match the demand that’s out there.

Dr. Stephen Anthony:  Absolutely Ross. Just on those latter points, anybody who’s worked with sufficient amount of time in government realizes that government hang on to a lot of sites. Whether it be car parks or buildings that could be redeveloped but for one reason or another, haven’t been. What we are saying is that it would be a wonderful thing if governments could do an audit and identify all these sites. Potentially the Commonwealth could put in some incentives for asset recycling so that these sites got developed quickly and what needed to expedite the supply of affordable housing.

Ross Greenwood:  The other one you make, and this is controversial because you sense the governments are slowly trying to get there. That is the abolition of stamp duty on properties and replace it with some form of land tax plus something else as well. Is something else, I’m not quite certain about what that is going to be, but it seems to me to be a little bit of common sense because stamp duty is about trying to have every transaction go through and state governments either live and prosper or basically die and wither. Whether they’ve got that stamp duty coming through or not.

Something like a mixture of land taxes, long-term would appear to be more sustainable for the state governments of Australia.

Dr. Stephen Anthony:  The reason an economist, the laws, if he lacks in duties, we are ahead of them. There are big lump sum, a lot of people in some council rates like laying tax on residential properties is the small charge every year, plus an asset betterment charge which is essentially, if you want to develop your property for a new use potentially you share with government the upside in that development permit application, and government can take that revenue and divided the infrastructure in your area.

What we’re saying here is, government investment causes up list on the unapproved annual properties and you would share some of that up list with the government which encourages a big win-win for everybody in terms of development.

Ross Greenwood:  Tell you what, great to have you on the program. Dr. Steven Anthony is the Chief Economist at Industry Super. This particular paper strikes at the heart of many of the issues that families are feeling right now. The lack of affordability for housing for their kids, plus also the fact of what do they do with the mortgage that they have and where do they actually get a bit of a break to try and create affordable housing in our big cities?

Bear in mind, if you do not have affordable housing in the big cities, ultimately many families get priced out of those cities which means skills and services as well. Stephen Anthony, as always we appreciate your time here on the program.

Dr. Stephen Anthony:  Thanks so much for the opportunity, Ross.

Essential stories relating to this article

Interviewed  Tim Lawless, Head of Research, Corelogic RP Data titled ” Has Sydney lost steam in the housing market?

Interviewed  Mark Steinert, CEO Stockland titled ” Sydney and Melbourne incredibly strong

Money Minute – August 16 2017 Housing Crisis

Interviewed  Louis Christopher, SQM Research   titled ” Cut immigration to cool the housing market

Interviewed  Robert Muller, Managing Director, BIS Oxford Economics titled ” The collapse of the housing industry is on the way

Interviewed  Shane Garrett, Sn Economist Housing Industry Association  titled ” New home sales at lowest level since 2013

Housing crisis will force the younger generation to be permanent renters

Interviewed  Lindsay David, Founder, LF Economics titled ” Housing: “The Ultimate Ponzi Scheme”

Interviewed  Sue Taylor, Director, Census Data  titled ” Census 2016: Changes in Ausltralia

Interviewed  Dr Nicola Powell, Domain Group titled ” Australia’s most affordable suburbs

Money Minute – June 2 2017 Housing Wobbles

Interviewed  Dominic Perrottet, NSW Treasurer titled ” NSW Housing Affordability Package – Dominic Perrottet

Money Minute – May 17 2017 Housing Market Back Fire

Interviewed  Tim Gurner, a property developer titled ” Tim Gurner  “When I was buying my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each”

60 Minutes: “When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each”

Interviewed  John Daley, CEO of the Grattan Institute titled ” Housing affordability Gratton Insititute

Interviewed  Chris Richardson, Chief Economist, Deloitte Access Economics titled ” Housing Prices ‘Dangerously Dumb’

Land Titles Registry Sale