The Housing Crisis

[gnrc_louis]

Speaking of which, I'll just leave these here...


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Editing to add this from the newly-unsealed 2004 cabinet documents, via ABC news.

Home ownership is becoming increasingly unaffordable, and the states should work to release more land and speed up development approvals. Sound familiar?

You would be forgiven for thinking this was a cabinet discussion in 2024, but it has been the case for 20 years, as newly unsealed documents from the time reveal.

It was the year 2004. The median nominal capital city house price in Australia was just short of $400,000 — or the equivalent of 6.5 years of annual family income.

That might seem a bargain by today's standards, but housing affordability was firmly in the sights of the Howard government.

In June, the Howard cabinet considered its response to a Productivity Commission's report on first home ownership.

That report made a series of findings, including that negative gearing rules and capital gains tax concessions combined to make investing in residential property more attractive, adding to demand and therefore prices in the process.

It recommended a review of those tax settings as soon as practicable:

"Other aspects of the personal taxation regime — including negative gearing rules, 'capital works' deductions, the 1999 change to capital gains tax, and high marginal income tax rates — have combined to magnify the attractiveness of investing in residential property during the recent upswing in house prices, thereby adding to price pressures."

A cabinet minute from June 21 detailed the government's response, including its opposition to the recommended review.

It did however support states to move away from stamp duties and improve land release and development approval — something still being pursued by today's government, with Treasurer Jim Chalmers detailing a $900 million fund to encourage states to reduce red tape.

Deemed the interest rate election, the 2004 poll came as interest rates and household debt rose.

"This election will be about trust. Who do you trust to keep the economy strong, and protect family living standards? Who do you trust to keep interest rates low?" then prime minister John Howard told reporters after calling the election.

He would go on to win his fourth and final term in government.

In the wash-up, Tim Gartrell, the then Labor Party secretary (now Prime Minister Anthony Albanese's chief of staff) said "seats with the highest proportion of mortgagees were generally those which recorded the biggest swings against the ALP".

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Yep, a long term issue which successive governments have been unwilling to comprehensively deal with (for a wide range of reasons), and instead just tinker around the edges. If they’d got rid of negative gearing 20 years ago I imagine it’d be a very different housing market today.

[Bobski]

Latest CoreLogic data.

It's wild to me that Adelaide prices are now so much higher than Melbourne. I realise there was a surge of investor interest in Adelaide when we were a cheaper option than the Eastern states, but we're now the third highest in the country. I wonder if we'll see an exodus of young people to Melbourne if this continues.

Melbourne dropped off heavily in 2024 and is now the third cheapest capital city in the country.

On the flip side, prices are still soaring in smaller capitals Perth and Adelaide, with the City of Churches now the country's third most expensive capital with a median price of almost $815,000.

There are also differences between the price of apartments and standalone homes, with units going up 3.6 per cent in value overall in 2024 versus homes rising by 5.2 per cent.

And for the record, here are their "expert predictions" for 2025:

What will happen in 2025?

Both buyers and sellers will be keenly watching the Reserve Bank in 2025.

Many economists are predicting the central bank will cut rates in May, but some think it might move as early as February.

"I think 2025 is going to be a multi-speed market," CoreLogic's Tim Lawless said.

"Once interest rates start to come down, that should provide a bit of a confidence injection to the marketplace which will boost borrowing capacity," CoreLogic's Tim Lawless said.

"We'll start to see that supporting some level of activity in the housing market, probably not enough to set up a new significant growth cycle, but probably enough just to keep a floor on housing prices."

A federal election could also see the introduction of more measures to help first home buyers.

"Housing is going to be one of the key topics coming to the federal election," Mr Lawless said.

"I wouldn't be surprised if we see both sides of the political fence really focusing on buying.

"For example, funding infrastructure costs for developers trying to kick start new housing projects will be a great way to start to boost housing supply, and it should have some level of immediacy to it."

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[SBD]

Someone said a couple of pages back that house prices shouldn't fall because the wider economy would tank. Can someone explain why a 25% across-the-board reduction in house prices would be so bad?

• New first-home-buyers would need 25% less capital to get started
• Selling the first home to upgrade to a larger "family" home would require 25% less capital for the changeover
• Downsizing from the large family home to the smaller retirement home doesn't actually release much capital after changeover costs, so the net financial effect is close to zero anyway
• across-the-board means the cost of aged care needs to stay inline with the sale of the retirement home

Is "the economy will tank" about the cost of creating a new house (materials, skilled labour etc)? The new land for new houses mostly is held by the government before being passed to developers, so the land price is essentially at the will of the state government. So is the cost of initial infrastructure services.

[rev]

Someone said a couple of pages back that house prices shouldn't fall because the wider economy would tank. Can someone explain why a 25% across-the-board reduction in house prices would be so bad?

• New first-home-buyers would need 25% less capital to get started
• Selling the first home to upgrade to a larger "family" home would require 25% less capital for the changeover
• Downsizing from the large family home to the smaller retirement home doesn't actually release much capital after changeover costs, so the net financial effect is close to zero anyway
• across-the-board means the cost of aged care needs to stay inline with the sale of the retirement home

Is "the economy will tank" about the cost of creating a new house (materials, skilled labour etc)? The new land for new houses mostly is held by the government before being passed to developers, so the land price is essentially at the will of the state government. So is the cost of initial infrastructure services.

I think that's about a sudden housing market crash. Didn't something like that happen in the US in recent memory?

Is there anything the government can do to bring prices/costs down gradually?

Supposedly one of the big factors that's helped push prices to these absurd levels is the cost of building materials. Is there anything the government can do on this front?
How much of an impact will doing what people want on negative gearing have on house prices?
Will building more public housing help bring down house prices?
Will significantly cutting back migration numbers (be it temp visas/permanent visas/whatever) help bring prices down?

Other then looking at ways to bring down costs or slow price growth, is there anything else governments could do, such as policies that could increase prosperity?
Wage growth has been going backwards, worst performer in the OECD. Is there anything they can do to reverse that?

More importantly, is there any political party that anyone believes will actually do anything serious and concrete to fix the housing crisis and the cost of living crisis which imho are largely one and the same overall issue..?

[Bobski]

I think that's about a sudden housing market crash. Didn't something like that happen in the US in recent memory?

Is there anything the government can do to bring prices/costs down gradually?

Supposedly one of the big factors that's helped push prices to these absurd levels is the cost of building materials. Is there anything the government can do on this front?
How much of an impact will doing what people want on negative gearing have on house prices?
Will building more public housing help bring down house prices?
Will significantly cutting back migration numbers (be it temp visas/permanent visas/whatever) help bring prices down?

Other then looking at ways to bring down costs or slow price growth, is there anything else governments could do, such as policies that could increase prosperity?
Wage growth has been going backwards, worst performer in the OECD. Is there anything they can do to reverse that?

More importantly, is there any political party that anyone believes will actually do anything serious and concrete to fix the housing crisis and the cost of living crisis which imho are largely one and the same overall issue..?

Yes, it was 2007-9 and contributed to the GFC.

It was the result of shonky lending practices and the reason I hear alarm bells when politicians spruik 2% deposit loan schemes here. Encouraging people to take on loans beyond their earning/saving capacity is irresponsible, IMO.

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As for which if any political parties have the courage/ability to fix the crisis, we have upthread the government's own housing minister confirming ALP do not want house prices to fall, or even flatline, and instead want further growth.

The LNP did nothing to curtail accelerating prices while they were in power, and their only idea now seems to be allowing buyers to raid their super, which would probably jack up prices more, and screw people over in retirement.

If the ALP are returned in minority, the Greens may be able to force them to take bolder action. However, Albanese does not seem to take the crossbench seriously, so any such collaboration may only be possible under a different leader.

Perhaps Chalmers would have the balls to actually do something (he had reportedly requested modelling around the effects of making changes to negative gearing, but it hasn't been released). For now, Cathy Wilcox sums it up best:

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[SBD]

Negative gearing has both positive and negative aspects, and if it is to be changed, should probably be as part of wider reform.

Negative gearing is often seen as "bad" because it enables potential landlords to pay more for houses. On the other side, it means that the landlord does not need to set the rent high enough to cover the full cost of ownership, as they can wear an operating loss in anticipation of a capital gain later.

If negative gearing was just cancelled with no other changes, I'd expect to see an immediate increase in rent, then a sudden one-off reduction in sale values as landlords work out there is no longer a tax advantage. I'm not sure if that would be permanent, I think it might only be lower once.

[rev]

It was the result of shonky lending practices and the reason I hear alarm bells when politicians spruik 2% deposit loan schemes here. Encouraging people to take on loans beyond their earning/saving capacity is irresponsible, IMO.

2% and the guarantees are just reactions and band aid solutions as are first home buyer grants.
Its an admission they've stuffed up.

Average house prices in the 700-900k range now.
Who has 70-90k as a deposit? Most couples struggled to save a 30-50k deposit..

Throw in bank greed and irresponsible lending practices, government policy not being in tune with the RBA rates policy...

[Jaymz]

The current 20% deposit is enforced on banks by Govt. regulations, it is to shield mortgage holders (and probably more so the lenders) from future housing price shocks... as in what happened in the US during the GFC.

When I was living in Perth in the mid 2000's, house prices doubled there in about 3 years. I vividly remember some smaller banks were willing to lend 110% of the value of a house and land package. Scary stuff indeed!!

I personally think a 10% deposit plus expenses should be more than enough, but I'm no lending expert.

[ChillyPhilly]

We should take a leaf out of Finland's book.

Homelessness was a big problem in Finland (as well as other Scandinavian regions).

Finland made housing a right, and basically decided to just end homelessness.

https://thebetter.news/housing-first-fi ... melessness

[Norman]

Someone said a couple of pages back that house prices shouldn't fall because the wider economy would tank. Can someone explain why a 25% across-the-board reduction in house prices would be so bad?

• New first-home-buyers would need 25% less capital to get started
• Selling the first home to upgrade to a larger "family" home would require 25% less capital for the changeover
• Downsizing from the large family home to the smaller retirement home doesn't actually release much capital after changeover costs, so the net financial effect is close to zero anyway
• across-the-board means the cost of aged care needs to stay inline with the sale of the retirement home

Is "the economy will tank" about the cost of creating a new house (materials, skilled labour etc)? The new land for new houses mostly is held by the government before being passed to developers, so the land price is essentially at the will of the state government. So is the cost of initial infrastructure services.

Well, if the house prices drop 25%, there will be a decent amount of people with mortgages that are larger than their property values. For example, a $1,000,000 house that had a $800,000 mortgage is now worth $750,000.

Secondly, if that first home buyer needs a larger family home, the one they live in now will also sell for 25% less, so there is not much of an advantage. For example, if the first homebuyer moves from a $500,000 home to a $1,000,000 home, the new home might only cost $750,000, but their existing house would only be worth $375,000 now.

[claybro]

Someone said a couple of pages back that house prices shouldn't fall because the wider economy would tank. Can someone explain why a 25% across-the-board reduction in house prices would be so bad?

• New first-home-buyers would need 25% less capital to get started
• Selling the first home to upgrade to a larger "family" home would require 25% less capital for the changeover
• Downsizing from the large family home to the smaller retirement home doesn't actually release much capital after changeover costs, so the net financial effect is close to zero anyway
• across-the-board means the cost of aged care needs to stay inline with the sale of the retirement home

Is "the economy will tank" about the cost of creating a new house (materials, skilled labour etc)? The new land for new houses mostly is held by the government before being passed to developers, so the land price is essentially at the will of the state government. So is the cost of initial infrastructure services.

Well, if the house prices drop 25%, there will be a decent amount of people with mortgages that are larger than their property values. For example, a $1,000,000 house that had a $800,000 mortgage is now worth $750,000.

Secondly, if that first home buyer needs a larger family home, the one they live in now will also sell for 25% less, so there is not much of an advantage. For example, if the first homebuyer moves from a $500,000 home to a $1,000,000 home, the new home might only cost $750,000, but their existing house would only be worth $375,000 now.

The economy would most certainly tank, because a large number of people with equity, currently use that equity to back up car finance, personal loans, all sorts of lifestyle purchases, which currently keep the economy ticking. This is besides the psycological effect of people reigning in spending once their perceived "millionaire" status vanishes. Banks would also call in their loans in some cases, forcing sales and pushing people over the edge. There are clauses in some mortgages where due to negative equity, banks can demand the difference and then a buffer up front to maintain the loan. I would say a full blown depression and social unrest would result. We really are in a catch 22

[SBD]

Someone said a couple of pages back that house prices shouldn't fall because the wider economy would tank. Can someone explain why a 25% across-the-board reduction in house prices would be so bad?

• New first-home-buyers would need 25% less capital to get started
• Selling the first home to upgrade to a larger "family" home would require 25% less capital for the changeover
• Downsizing from the large family home to the smaller retirement home doesn't actually release much capital after changeover costs, so the net financial effect is close to zero anyway
• across-the-board means the cost of aged care needs to stay inline with the sale of the retirement home

Is "the economy will tank" about the cost of creating a new house (materials, skilled labour etc)? The new land for new houses mostly is held by the government before being passed to developers, so the land price is essentially at the will of the state government. So is the cost of initial infrastructure services.

Well, if the house prices drop 25%, there will be a decent amount of people with mortgages that are larger than their property values. For example, a $1,000,000 house that had a $800,000 mortgage is now worth $750,000.

Secondly, if that first home buyer needs a larger family home, the one they live in now will also sell for 25% less, so there is not much of an advantage. For example, if the first homebuyer moves from a $500,000 home to a $1,000,000 home, the new home might only cost $750,000, but their existing house would only be worth $375,000 now.

The economy would most certainly tank, because a large number of people with equity, currently use that equity to back up car finance, personal loans, all sorts of lifestyle purchases, which currently keep the economy ticking. This is besides the psycological effect of people reigning in spending once their perceived "millionaire" status vanishes. Banks would also call in their loans in some cases, forcing sales and pushing people over the edge. There are clauses in some mortgages where due to negative equity, banks can demand the difference and then a buffer up front to maintain the loan. I would say a full blown depression and social unrest would result. We really are in a catch 22

Thank you. I was thinking about the starts/ends and transitions, and forgot about the long period in the middle. The structural change would also need a 25% reduction in outstanding mortgages/home loans, which can't be paid for anywhere.

It wouldn't matter if the sale of first home/purchase of second changes from being $500k/$1M to $375k/$750k if the homeowner has the equity, but it matters a lot if they still have a $400k loan on the first home and that is not proportionately reduced with the value shift.

I think we're getting to the point that the "unaffordable" bit is actually the creation of a new house. A modern "basic" house has a lot of features that weren't in a basic house 30 or 60 years ago. We're also expecting the tradespeople and apprentices to receive proportionately better wages than they used to (so that they can also afford to enter the housing market). Current state government policy appears to be to "release" more land for urban sprawl, and push our food production further from the concentration of consumers. It then discovers this new urban sprawl requires increased infrastructure for transport, utilities, health, education and tries to either defer to a future government or offload to the developers any costs associated with these. The developers then have to sink more capital into the development before it provides any return, so the cost increases and they have to charge more for the land.

Interest rates to control inflation primarily through housing loans only directly hit about a third of the population, and arguably it's the wrong third. I don't think I have a solution though.

[bits]

You don't need to wipe out negative gearing in one go. You can just slowly reduce its effectiveness. No shocks and slow pressure against holding property as a primary investment.

[rev]

What they could do is get creative and flexible perhaps.
From my experience, my parents and grand parents, uncles and aunties and cousins, the properties they've bought over the years since before I was born, wasn't as an investment to increase their immediate wealth, but for future generations. For their kids and so on. Sure they rent them out in the meantime to help pay down mortgages, but the primary purpose of buying those houses was an investment in their kids futures so they have a house to live in.
This sort of scenario, which is quite common in non-Anglo European families in Australia, shouldn't be punished or treated the same as other scenarios. If anything it's probably more comparable to the government creating the superannuation system. Future proofing.
And this shouldn't even have to be a thing, but they coming from countries that have experienced a lot more turmoil and ups and downs then Australia ever has in it's short history, could foresee these troubling times as a possibility.
We should be a country where you can work an honest job, and be able to afford to put a roof over your head and live comfortably.

That's quite a different scenario to the people you read about in the media every month or so who have gone from for eg $40k in savings to having a property portfolio of $10million.
These people should be treated as a type of business with different taxation rules etc.

Owning two or three properties so that you can ensure your kids have a roof over their heads when they're adults and enter the work force, is quite a different situation to buying up as many properties as you can for personal financial gain.

But imho this is only one small part of fixing the problems.
We've technically become poorer in Australia, with negative wage growth far worse then any other nation in the OECD. Perhaps stop importing hundreds of thousands of people every year so that there isn't downward pressure on wages, and also created higher demand for fewer and fewer houses(more demand then supply = higher prices) would be a good place to start too, since they've openly said they have no desire to see house prices come down but continue to grow.

[Bobski]

You don't need to wipe out negative gearing in one go. You can just slowly reduce its effectiveness. No shocks and slow pressure against holding property as a primary investment.

I think this is exactly what Chalmers was considering before he was, presumably, told to pull his head in by those in the ALP who still have PTSD from 2019 loss and recoil in horror any time changes to negative gearing or CGT are mentioned.

AFR Oct 25, 2024

Jim Chalmers has finally killed off consideration of winding back tax concessions for property investors, saying the proposed changes would not do enough to boost supply in Australia’s housing market.

After weeks of controversy about modelling on changes to negative gearing and capital gains tax concessions provided to Dr Chalmers by Treasury officials, he used interviews from Washington to finally quash speculation of a policy shift before the election.

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The recent National Press Club housing debate encapsulates where we're at. We've got Michael Sukkar bashing the CFMEU, demonising migrants, and framing super as a honey pot of free money.

Max Chandler-Mather has some good ideas, and others that are not tethered to reality. He is, at least, able to correctly identify the current situation as a crisis, which requires immediate action.

Clare O'Neil was invited, but didn't even bother to turn up. I can only assume she didn't want to embarrass herself by attempting to defend the government's meek and inadequate policy proposals.

We are so screwed.



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