Government can be a bit like a booby-trapped game of pass the parcel. On certain issues all you can do is pray that the game continues while you're in power.
When the music stops, you don't want to be the government when Australians determine that the younger generation won't realise the dream of home ownership.
Those in the Abbott Government will be praying they're not holding the parcel at this pivotal stage.
It is easy, nevertheless, to lull yourself into a false sense of security.
Thousands of Australians will this weekend follow the national past time of reading the real estate pages, inspecting open houses, or attending auctions.
Our collective fascination with the property market is legendary and has historically delivered great riches to those who can afford to play.
It's our version of the yellow brick road - the path to prosperity in Oz.
Our obsession with housing makes it an exquisitely sensitive political subject.
The famously cautious John Howard was forced into a rare display of saying sorry during the 2007 election for a series of interest rate rises, just three years after he famously declared rates would always be lower under a Liberal Government.
Of course we have been warned for years that ballooning house prices pose real danger to the economy.
With so many Australians stretching themselves thin despite historically low interest rates, massive problems could crop up if unemployment rises, wages stagnate, cost of living increases, or rates head upwards.
The obstacle to government action, however, is that one third of the electorate have bought their house and paid for it, and one third have bought it and are paying it off. The other third are scattered across rental and other forms of housing.
In other words, at least two thirds of voters desperately want house prices to rise. It's hard for governments to move against their wishes, no matter how responsible such action might be.
But the real bottom line is this: you don't want to tell Australian parents their kids won't be able to buy a home.
WorkChoices was unpopular because parents were worried about their kids' future. Kids being locked out of the property market would mean difficult times ahead for the Abbott Government.
Two sets of figures released in the past week raise that spectre. First, Domain Group reported that Sydney and Melbourne's auction market results slipped below 80 per cent two weekends ago - their lowest clearance rates for two months.
Two months isn't long but spring is considered to be boom time in real estate.
Of more concern, however, were figures released by the Australian Bureau of Statistics (ABS) that showed investors have flooded the market at the expense of first home buyers.
In fact, the share of home loans taken out by first time buyers in Australia has fallen to its lowest level since records began in 1991.
They accounted for just 11.8 per cent of the mortgages approved in August, while investors rose to a record high of 40.6 per cent.
And with house prices surging by more than 10 per cent in the past year in some parts of Australia, first home buyers are struggling to find a foothold.
RP Data research director Tim Lawless said the broad slowdown in first home buyer demand can probably be attributed to a few factors:
With dwelling values rising at a time when average wages aren't rising anywhere near the same pace, affordability constraints are dampening first home buyer demand.
This is particularly the case in Sydney and Melbourne where dwelling values have risen substantially.
The Reserve Bank warned in September that soaring strong housing prices and increasing investor activity could pose risks to the economy. They said:
The composition of housing and mortgage markets is becoming unbalanced.
The apparent increase in the use of interest-only loans by both owner-occupiers and investors might also be consistent with increasingly speculative motives behind current housing demand.
At this stage the main risk from this strong investor activity appears to be that the extra demand may exacerbate the housing price cycle and increase the potential for prices to fall later.
The RBA said it would begin talks with the Australian Prudential Regulation Authority (APRA) about how to reinforce sound lending practices for property purchases.
Yet there is no easy solution. Allowing prices to fall to affordable levels for young Australians with average incomes would present its own problems.
Rising house prices lead to rising consumer confidence through what is known as the wealth effect.
During the Howard-era housing boom, which peaked some time around 2003, consumers were using their homes like ATMs, and borrowers were handing out more than the value of the home as a loan.
Australians were in a buoyant mood and continued to spend like drunken sailors.
But when the Global Financial Crisis hit and house prices fell 2.6 per cent in the June quarter of 2008, consumer confidence also took a hit.
Plummeting housing prices brings with it a collapse of building investment and construction, which can lead to recession plus a whole lot of people with a prized asset worth less than what they paid for it.
It was no coincidence that much of the Rudd Government's stimulus measures were directed at encouraging participation in the housing market through the First Home Owners Boost and helping to keep the roughly one million workers linked to the building and construction industry employed through the downturn via Building the Education Revolution and the Social Housing construction program.
At the moment, we haven't seen any attempts by the Abbott Government to intervene in the market. After all it's against their nature as free marketeers.
But if the perception is that a generation of Australians have been locked out of the housing market takes hold, they would be wise to have a plan.
It's a tough problem, but governments are expected to solve tough problems. Or at least be seen to try.
There is no shortage of housing finance in Australia. Mortgages are available at reasonable cost from a range of lenders, and households are not artificially constrained from borrowing as much as they can reasonably be expected to repay. Home buyers are also not excessively constrained in their access to finance by the limits imposed by lenders to reflect the default risks that those borrowers pose. Lenders no longer base allowable loan amounts on simple ratios of repayments to income, as was standard practice in past decades. Most Australians I encounter who return from overseas remark how good it is to be living and working here. We are indeed ‘lucky’ in so many ways, relative economic stability being only one of them. It is perhaps unreasonable to expect low-cost housing in a country that enjoys so many positives.
There is no shortage of housing finance in Australia. Mortgages are available at reasonable cost from a range of lenders, and households are not artificially constrained from borrowing as much as they can reasonably be expected to repay. Home buyers are also not excessively constrained in their access to finance by the limits imposed by lenders to reflect the default risks that those borrowers pose. Lenders no longer base allowable loan amounts on simple ratios of repayments to income, as was standard practice in past decades. Most Australians I encounter who return from overseas remark how good it is to be living and working here. We are indeed ‘lucky’ in so many ways, relative economic stability being only one of them. It is perhaps unreasonable to expect low-cost housing in a country that enjoys so many positives.
If Australia’s land-use, planning, infrastructure funding, and taxation systems were more liberal towards development, and housing supply was as responsive as, say, Houston, then increases in demand from rising incomes, population growth, and investors (both domestic and foreign) would quickly lead to the building of additional low priced housing (either on the fringe or in-fill), keeping house prices in check. Most importantly, speculators would be less likely to pile into such a market, since there would be less prospect of achieving strong capital gains. Instead, investing would be more about yield, and the market would be building for home owners, rather than speculators.
That said, it is wrong to pin Australia’s housing affordability woes solely on the supply-side. Australia’s peculiar tax laws have made investment into housing a relatively attractive proposition via a combination of high tax rates on savings, minimal taxes on land, as well as generous tax concessions like negative gearing and capital gains tax discounts. As a result, demand for housing in Australia is much higher than it otherwise would be, resulting in too much of the nation’s capital being tied-up in housing and inflated values.
Put simply, less demand from domestic and foreign investors into pre-existing housing would lower prices (other things equal), making it easier for first home buyers to enter the market.
Comprehensive reform of Australian housing requires both measures to free-up supply-side bottlenecks and improve infrastructure, as well as efforts to remove speculative demand induced by spurious tax incentives and lax foreign investor surveillance and compliance.
If Australia’s land-use, planning, infrastructure funding, and taxation systems were more liberal towards development, and housing supply was as responsive as, say, Houston, then increases in demand from rising incomes, population growth, and investors (both domestic and foreign) would quickly lead to the building of additional low priced housing (either on the fringe or in-fill), keeping house prices in check. Most importantly, speculators would be less likely to pile into such a market, since there would be less prospect of achieving strong capital gains. Instead, investing would be more about yield, and the market would be building for home owners, rather than speculators.
That said, it is wrong to pin Australia’s housing affordability woes solely on the supply-side. Australia’s peculiar tax laws have made investment into housing a relatively attractive proposition via a combination of high tax rates on savings, minimal taxes on land, as well as generous tax concessions like negative gearing and capital gains tax discounts. As a result, demand for housing in Australia is much higher than it otherwise would be, resulting in too much of the nation’s capital being tied-up in housing and inflated values.
Put simply, less demand from domestic and foreign investors into pre-existing housing would lower prices (other things equal), making it easier for first home buyers to enter the market.
Comprehensive reform of Australian housing requires both measures to free-up supply-side bottlenecks and improve infrastructure, as well as efforts to remove speculative demand induced by spurious tax incentives and lax foreign investor surveillance and compliance.
Sure Mr Developer, we should burn and raze and build like Houston then we too can have 45% home ownership and 22% living under the poverty line and massive homelessness.
Slums in the boondocks if you are Hispanic (but they sure are cheap) and nice big expensive gated communities for the wealthy in the parts of the city everyone wants to live. It does help to keep the median price down though
I think you are going to have a hard time convincing egalitarian Australians to throw out their planning regs and environmental protection laws for developers that are out to raze national parks and build on farmland.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
Sure Mr Developer, we should burn and raze and build like Houston then we too can have 45% home ownership and 22% living under the poverty line and massive homelessness.
Slums in the boondocks if you are Hispanic (but they sure are cheap) and nice big expensive gated communities for the wealthy in the parts of the city everyone wants to live. It does help to keep the median price down though
I think you are going to have a hard time convincing egalitarian Australians to throw out their planning regs and environmental protection laws for developers that are out to raze national parks and build on farmland.
Inequality has been rising in Australia for more than a decade.
Because you are a useful idiot for the bankers you dont realise this.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Inequality has been rising in Australia for more than a decade.
Because you are a useful idiot for the bankers you dont realise this.
You are the one who seeks to spread inequality Veritas. You are the one who is the bankers best friend. Seriously you do need to read Robert Tressell.
Almost every topic you jump on, you seek outcomes that would increase inequality eg removing negative gearing.
Crash spruiking is dreadful, you seem to be under some impression that the rich will suffer, how silly is that -the rich have plenty of backup, they just use the recession to top up their property portfolios.
Look long and hard at London and you will be grateful that you live in this country and especially Perth where a young person can get a decent place and live a great life on a normal wage. Just think about how nurses, firemen, teachers etc have to live if they work in London. They are pushed out to tiny units in satellite towns more than an hr out of the city.
Australia will be much more unequal due to the carrying on of the big mouthed don't buy now brigade, that left the property market to the rich to pick over for the last few years.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
You are the one who seeks to spread inequality Veritas. You are the one who is the bankers best friend. Seriously you do need to read Robert Tressell.
Almost every topic you jump on, you seek outcomes that would increase inequality eg removing negative gearing.
Crash spruiking is dreadful, you seem to be under some impression that the rich will suffer, how silly is that -the rich have plenty of backup, they just use the recession to top up their property portfolios.
Look long and hard at London and you will be grateful that you live in this country and especially Perth where a young person can get a decent place and live a great life on a normal wage. Just think about how nurses, firemen, teachers etc have to live if they work in London. They are pushed out to tiny units in satellite towns more than an hr out of the city.
Australia will be much more unequal due to the carrying on of the big mouthed don't buy now brigade, that left the property market to the rich to pick over for the last few years.
Funny, I criticize the current system.
You defend it. And according to you, I am the friend of the banker.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
Veritas you don't criticize the bankers, you just want to visit some kind of divine retribution on home owners.
What do you want a crash here for? So our taxpayers, like those in Ireland can get to give loads of money to the banks?
Are you really incapable of thinking on your own?
Debating with you basically works like this.
You: I think this
Me: I think you are wrong and here is why
You: I choose not to address the point you make but rather invent one, pretend you made it, and disagree with that.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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