Finally! Someone else has come and said what we have been saying for years: Australia’s housing markets are not operating on a level playing field.
On Tuesday, the Committee for Economic Development of Australia found that Australia’s worsening housing affordability is unlikely to improve for 40 years under current policies. Driven largely by population growth (think migration policy), we’ve seen strong, growing demand in our major capital cities — especially Sydney and Melbourne. Combined with a largely inelastic supply chain, this means many people won’t be able to afford to own a home…and we may shift to having a larger percentage of rent-f0r-lifers.
CEDA chairman Rodney Maddock feels the blame can be laid at the feet of both State and Federal government policies, which inadvertently encourage large-scale developers to drip-feed supply into the system. Mr. Maddock was quoted in the Financial Review as saying, “Australia’s growing population needs to be housed. If people want to live in cities, we need to adapt to and accept higher population densities. We also need to accept that in future most people will live in apartments and will often be renting.”
Mr Maddock also said solutions exist, calling for changes to enable better land release, stronger tenants’ rights for long term-renters, a shift to land-based taxation over stamp duty, and increased capital gains taxation.
Economist Steve Keen, famous for his wild prediction for the post-GFC property market, has some radical ideas of his own to help heal the property market: limiting lending that can be given against a given asset, a private debt reset (i.e. government bailout of households), and others.
But identifying the problem of runaway house prices is far easier than actually stopping it, given all the vested interests involved and political backlash that major economic and taxation changes are likely to have.
Here are the 3 lessons we can all take away from CEDA’s report:
- Unless we see significant reform to Australia’s migration or taxation policies, it is unlikely that house price growth is going to slow in the medium to long term. And if you are currently waiting for house price growth to retrace, you might be waiting 40 years or more.
- Rentvesting will become a more viable investment opportunity for all Australians looking to get their foot on the property ladder. Rentvesting is the process of investing in a property you can afford, whilst continuing to rent in the area/property you want to live in. By delaying buying your own home in favour of rentvesting, it may be possible to build a portfolio of tax-advantaged properties and ultimately buy your dream home later on.
- Property is a cyclical investment. Right now we are almost 10 years into an ultra-low interest rate environment. Strong capital city demand from our migration policies, coupled with a historic, chronic undersupply, led to a construction boom that appears to have now peaked. Tighter credit conditions for developers, foreign investors, and bank lending policies will likely dampen short-term growth. However, as with all cycles, this tightening will invariably lead to a further supply crunch in the medium-term, followed by a further round of house price growth. During this period, some areas and property types will simply outperform others.
Want to know where, how, and why The Property Mentors will be investing over the short, medium, and long term? Then join us this month on our free Spring Preview Tour: from 19 — 27 September, we’ll be travelling all around Australia to teach you how to invest in property. Learn more and register now here.