Watching Abbott and Hockey’s insightful commentary on the state of Sydney’s much maligned ‘housing market’ (really? there’s only one market across the entire city and its inner suburbs?), reminds one of the classic Abbott and Costello, “Who’s on first base?” routine.
First the Treasurer, who happens to hail from a family rich in real estate assets, suggests that the housing shortage is to blame for runaway Sydney prices, so we just need to build more.
Then he claims that he “totally understands” property in Melbourne and Sydney is a little on the pricey side, so perhaps would-be first home buyers just need to get a better paying job.
“If you go back 10 years first home buyers represented 10% of the overall market – today they are struggling to record a 5% market participation,” Hockey said in a rare empathetic moment.
“The Sydney and Melbourne property markets are overwhelmingly being driven by property investors and foreign buyers.”
Well…no (insert profanity here) Sherlock! Of course only purchasers with the necessary abundance of equity and capital can compete in the most hotly contested Sydney property sectors, where prices are rapidly escalating beyond the million-dollar mark.
The question is…what are you going do about it? And the answer is…probably nothing.
The government’s Great Australian Dream
While it might seem logical to stop selling all the assets needed to house our growing population to overseas buyers, the truth of the matter is neither side of politics will make any significant changes to foreign investment policy, any time soon.
Nor do they particularly care that home ownership rates in Australia are on the decline, as property investors take the wheel to drive the fortunes of local housing markets.
Currently, 100% of all new housing developments can be marketed and sold offshore.
Given the bulk of global wealth sits with Asia’s emerging economies and Australian housing is a hot commodity, it’s little surprise that overseas consortiums and local larger developers are taking advantage of the lucrative opportunity to sell their product to overseas buyers.
On the flipside, younger generations of would-be homebuyers in Australia are facing the prospect of becoming trapped indefinitely on the rental roundabout.
Necessity (being money) dictates that young adults must go where the work is. Right now, that’s basically the big smoke capitals, where the city-centric service sector is providing much of our current jobs growth.
But sky rocketing house prices mean renting an apartment within easy commuting distance to CBD employment opportunities is far more achievable than buying one.
And it looks like this current status quo is here to stay for a bit, with Deloitte’s 2015 Mortgage Report highlighting a growing disparity between house prices and wages growth, as property values climb five times faster than salaries in some areas. No prizes for guessing a few Sydney suburbs made that list!
So now you have the beginnings of the perfect property investment storm – with a growing tenant pool to take up all of that new apartment stock being sold off plan to local, equity laden mum and dad investors and overseas buyers.
Build it up
Although many economists are voicing concerns around an Australian housing bubble, the (perhaps unfortunate) fact of the matter is that our economy is currently almost entirely reliant on residential real estate to keep the cogs turning.
To put it in perspective, the property sector now contributes more to Australia’s GDP than mining. It generates 11.5% of gross domestic product, employs 1.1 million of us and pays $72.1 billion worth of local, state and federal taxes per annum.
A government gunning for re-election, and their opposition for that matter, would do anything to preserve those bickies. Any unfavourable policy that might jeopardise the present momentum of our property sector would be political suicide.
The problem is, traditional measures relied on to breathe new life into an ailing economy just don’t seem to be working right now. Probably because we’re on the cusp of a new (and untried) world economic order where Asia dominates the marketplace.
We were forewarned that this time would come however. In 2008 Ken Henry presented the Henry Tax Review to the Labor party, suggesting urgent change by way of significant tax reform was required to prevent a serious economic derailing for Australia.
He tried again in 2014, warning the Abbott government that a carefully considered tax and welfare package was necessary to head off an imminent budget crisis.
And here we are…at a turning point where property has become the apparent life-blood of Australia’s fiscal fortunes, with nothing much else helping with all that heavy economic lifting.
Mind the Gap
Governor Glenn Stevens will no doubt feel conflicted as he enters next week’s RBA interest rate meeting.
Australia’s economy is weaker than forecast two years ago, with an anticipated mid-year growth rate of less than 2.5 per cent falling somewhat short of 2013’s predictions at 2.5 to 4 per cent.
However, Stevens is also becoming a lot more expressive when it comes to his own concerns about Sydney property prices.
He recently cited data from HSBC, which highlights a 24 per cent increase in Australian house prices over the last three years, with much of the gains concentrated in Sydney and Melbourne at 39 per cent and 22 per cent respectively.
But when you have a government reluctant to introduce significant tax reform and very little aside from bricks and mortar to keep the economic heart of a nation beating, what do you do?
I guess we’ll see what the answer is next Tuesday…