A third of all Australian households own their homes outright, another third are paying off a mortgage on their home, but what of the third who are facing a bleak future of continuing affordability issues preventing them from getting their foot in the proverbial (and literal) property door?
While recent falling interest rates and relatively stable house prices have been kind to the majority of Aussies, a report last year from the McKell Institute entitled “Homes for all”, examines the issue of housing affordability and indicates that of young people aged 35 or less, 66 per cent cannot break into the housing market and are forced to remain at home or renting.
And the outlook was worse for Sydney-siders, with 70 per cent of this demographic locked out of home ownership into the foreseeable future.
Home ownership is something older people do
Co-author of the report and former housing adviser to the London mayor and British government, Tim Williams says, “Home ownership is becoming something that older people do.”
Williams says one notable issue that has created this home ownership class division is the ability for investors to negatively gear property.
‘I remember my head reeling when I discovered how generous negative gearing was. There’s nothing like it in the known world in terms of its generosity and in terms of its middle-class welfare.”
He says dangling this carrot in front of cashed up investors only adds to the housing demand that’s placing upward pressure on prices here in Australia as we face an ongoing housing shortage, and has done for decades.
”I just think it’s an astonishing gift to the wealthy and it has perverse effects on the housing market. You are squeezing young people out of home ownership while some people have two, three or four units – the incentives are just wrong.”
Adding weight to his argument is the fact that 22 per cent of people currently own 55 per cent of all Aussie homes.
But is it as simple as pointing the finger at proponents of negative gearing?
Williams even goes so far as to suggest that an alliance of sorts has been formed between wealthy Sydney homeowners and environmentalists, keeping a lid on new housing construction in the city, virtually strangling housing supply and thereby enjoying higher house prices.
Some solutions to the affordability problem
The institute’s report suggests that some of the potential solutions to the affordability issues include the phasing out of tax breaks that encourage property investment such as negative gearing and capital gains tax exemptions on the family home, the abolition of hefty home buyer costs like stamp duty and encouraging higher density development along transport lines and a focus on developing multi-centric cities.
I’ve already shared my views on negative gearing in this article – Why Negative gearing should not be abolished and regular Property Update blogger Peter Wargent gave his views in this article – If negative gearing is scrapped what will it mean for property investment?
I don’t believe the housing affordability issue facing our younger generations can be fixed with the wave of a magic wand that will remove incentives for property investment.
But then what would I know; I’m just a property investor?
Rather, a big picture view needs to be taken. Let’s not forget the natural cyclical forces at play in real estate that see house price corrections, such as those we are currently witnessing, assist with sustaining the property markets.
And what of the flood of first time buyers immediately after the GFC due to the increase in the first homeowner’s grant, that caused a mini property boom? This incident alone shows that the issues are far more complex than simply pointing the finger at us “greedy” investors.
Punishing those who seek to become self sufficient through property investment is not the answer to housing affordability.
Back to the drawing board then?
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