Industry experts tip a rental crisis is looming and governments, both federal and state, will need to spend big time or encourage private investors and developers to build up the stock of rentable properties.

As immigration rises, this potential problem of a lack of real estate for renting might be good news for those worrying about a 25% fall in house prices over the next two years.

As The Australian pointed out today: “Labour shortages and record low unemployment levels prompted the federal government earlier this month to increase the nation’s migration cap to 195,000 people this financial year, allowing an additional 35,000 to call Australia home.

“But the elephant in the room remains the housing supply and a lack of commitment to addressing the issue from federal and state governments.”

And there will also be other new arrivals who will want a place to live.

“PropTrack’s director of economic research Cameron Kusher said the elevated return of migrants would coincide with students arriving for university, with both groups requiring places to live,” MacKenzie Scott and Joseph Lam reported in The Australian.

Kusher says build-to-rent apartments are on the way in Sydney and Melbourne but they’re not happening elsewhere, and new arrivals to Australia usually rent for a few years before trying to own a property. And an industry expert says the property market will be drawn back to five years ago before house prices started to boom.

“What is going to happen, without a shadow of a doubt, is that net migration is going to turn back on at the exact same time as we have the lowest level of apartment completions since 2017,” Mirvac chief executive Susan Lloyd-Hurwitz said. “We’re going to get a significant under-supply on the east coast. At the same time as that we suddenly have 190,000 people per annum.”

This seems like a big problem but it could be huge if you believe the forecasts of buyer’s agent Simon Pressley of Propertyology. He says that on top of the near 200,000 surge in immigrants, 500,000 students are expected, but even if this halved because the pandemic encouraged online learning, it’s still a big number of potential renters chasing too few properties.

Pressley believes governments will have to step up and encourage private investors. “To get people back into proper homes, governments will soon be forced to accept that private investment in housing must be accelerated. It is inevitable that Australia will enter an investor-driven property boom, maybe as soon as 12 months from now.”

Given that governments have been saying no to developers applying for high-rise apartments and numerous builders have gone into bankruptcy lately, the supply of housing is going to be too low when new arrivals come looking for places to live in.

This means the existing stock of homes should have some willing investor buyers maybe just when some over-borrowed homeowners will be looking to exit the market. It all suggests that the 25% wipe-out predicted for house prices could prove a little over-the-top.

It’s interesting to note our RBA’s explanation of the GFC housing crisis in the US in 2008. This is what the Reserve Bank observed: “The catalysts for the GFC were falling US house prices and a rising number of borrowers unable to repay their loans. House prices in the United States peaked around mid 2006, coinciding with a rapidly rising supply of newly built houses in some areas.”

This is a big difference from us here in Australia. We have a crisis of an undersupply of housing, which makes it harder for house prices to fall 25%. It means we will have a rental crisis in coming years until governments either build themselves or encourage private players.

How the October 25 Budget addresses this issue will be an important test for our new Treasurer, Dr Jim Chalmers.

Stocks are expected to open up today but are still down 7% since the start of the year, while we all know that house prices are falling as interest rates choke off the boom that started when Bill Shorten lost the May 2019 election.

This huge surge in property prices was helped by Covid forcing interest rates down to rescue levels, pushing what we pay for homes close to 30% since the middle of 2020 nationally. And if you want more price growth numbers, take this from the SMH in December last year:

“Sydney house prices have more than doubled in the past decade, rising 146.4 per cent in the 10 years to October 2021, a Ray White analysis of CoreLogic data showed. That was followed by Hobart, up 117.6 per cent, and Canberra, up 108.2 per cent over the same period.”

So who pays $80 million for a Melbourne mansion tagged the ‘ghost mansion’? The Australian’s John Stensholt tells us it’s an ‘unknown’ 26-year-old Aussie called Ed Craven.

His business is called Stake.com but when you Google it to see what it does, we get this notice: “Sorry, Stake isn’t available in your region.” So what does the business do?

Wikipedia says: “Stake.com offers traditional casino games (such as slots, blackjack and roulette) and sports betting. It offers video streams with live dealers. Users on Stake.com typically do not deal with traditional currencies, instead, they deposit and withdraw cryptocurrencies to and from their betting account.”

It's thought the betting site is among the first online gaming sites to exclusively use cryptocurrency as a medium of exchange. So it’s double gambling — playing blackjack online while punting on your bitcoin stake not going down.

I guess it can be a win-win, loss-loss or you could lose half your stake if the cards go against you but the other half you have left could double in value while you’re gambling!

But one thing Ed Craven has proved by buying this Toorak mansion on 7,200 square metres of land, is that the house always wins with casinos.

This landmark property was owned by David Yu of Ausvest Holdings and was never finished, hence its nickname “the ghost mansion”.

Yu bought the place in the recession year 1991 from Leon Fink for $5 million. Fink used to own Hoyts cinema business and Triple M, in the top-rating days of Doug Mulray in Sydney and the Degeneration crew which starred the likes of Rob Sitch, Tony Martin, Jane Kennedy and Mick Molloy.

David Yu hasn’t struggled, owning more than 40 Melbourne properties, but in 2001 he sought approval to demolish Ed’s new house to make way for a five-storey apartment block. Since the planning application was rejected in June of that year, the house he bought in 1991 for $5 million has stood empty.

But I guess $5 million turning into $80 million over 30 years is an ok return — it’s about 10% plus a year, so he could have slammed it in a good industry super fund and gone close, but he wouldn’t have had the tax deductions!

Back to Ed’s house and it’s not the most expensive sold, with Mike Cannon-Brookes taking out that one with his $100 million purchase of Fairwater on Sydney Harbour, which was owned by the Fairfax family of SMH and AFR fame.

Interestingly, John Stensholt points out that a top-level apartment at Sydney’s Barangaroo sold for more than $100 million, which makes me ask questions about the severity of this expected house price crash.

All this is interesting but what about Ed’s business that has bankrolled it all?

Sarah Danckert at the SMH and the Age looked at Ed’s business Easygo Gaming in humble digs in Melbourne, late last year, and revealed how this start-up, co-founded with 27-year-old Bijan Tehrani, also owns Stake.com. “Within a few short years, Stake.com has processed tens of billions of bets on sports, slots and casino table games,’ Danckert wrote. “Industry observers conservatively value the operation at $1 billion.

The business is actually the shirt sponsor for EFL Championship football team Watford, which was once owned by Elton John.

Interestingly, online casinos are banned in Australia but not in the US, and given the Watford sponsorship of $9 million, Poms can gamble at online casinos.

By the way, Ed also previously bought another Melbourne mansion in Orrong Road, Toorak for $38 million. I guess the moral of this story is that not only does the house win with casinos, but the casino owners also win a pile of houses!

In fact, the history of the very rich is to start a great business and buy great properties — it’s as safe as houses — but learn from the Fink/Hoyts story, don’t borrow too much.

Top Spring Australia has just sold one of only three top-floor penthouses in its landmark new development, Ode | Double Bay, for a record $24,950,000.

The 311sqm penthouse featuring a 148sqm private roof terrace with spa pool was purchased by a local retired couple who are downsizing from their existing family home and plan to spend their time between a beach house and their new Ode | Double Bay penthouse.

The purchase has surpassed Double Bay’s existing apartment sales record of $16+ million, set in March 2022.

1^st City Projects Managing Director, and Ode, Double Bay sales agent Brad Caldwell-Eyles, has been involved with the development since the original architectural design competition. “Ode | Double Bay has always been about an ultra-premium, exclusive product, combining beautiful design with the site’s unique attributes of views and village character,” he says.

This is now the second time 1^st City has broken the Double Bay Penthouse record. In March this year, 1^st City’s founding partner, Julian Hasemer sold a $16 million Penthouse in William St, Double Bay, creating a new apartment record for the suburb.

“The team was always confident the Ode | Double Bay penthouses, being so supremely special and rare, would likely be some of the first to be sold,” Julian said. “We have just commenced the formal sales campaign and buyers have been aware of the project’s approach and have reached out to secure preliminary details. Ode | Double Bay was always destined to significantly re-set the sales record benchmark for Double Bay. Twenty-five million dollars exceeds the previous record by over 50%.”

Ode | Double Bay is a love letter to Sydney’s most aspirational harbour-side hamlet, expressed in iconic, world-class architecture, artisan interiors, and timeless style.

Occupying a prominent corner site at 19-27 Cross Street, directly linked to a proposed public plaza with street-level dining, cafés and bars, it’s a once-in-a-lifetime opportunity to custom-make a remarkable life filled with all Double Bay has to offer.

With exemplary concierge services, retail and dining downstairs and nearby, Ode | Double Bay offers the best of all worlds - exceptional design by celebrated architect Luigi Rosselli, extraordinarily spacious interiors by Alwill Interiors, and magnificent harbour views. It’s a thrilling mix of European refinement and the ultimate Eastern Suburbs lifestyle, optimism and hedonism.

Three exclusive penthouses boast expansive rooftop terraces, including a BBQ, spa, and entertaining areas with spectacular views of Sydney Harbour. Inside, luxe stone in kitchens, bathrooms and powder rooms make a bold statement, while bedrooms feature stunning, leather-clad wardrobe doors and marble vanities.

Ode | Double Bay offers superlative art and design, hand-crafted and customized finishes and a flawless concierge. Services for residents will include making reservations for events and dining, organizing dry cleaning, receiving deliveries and coordinating access for cleaning and maintenance.

But what makes Ode | Double Bay exceptional is the level residents can tailor to their individual preferences.

The generous kitchens offer two joinery colours and three stone options, with even more elevated selections for penthouses. Floors can be timber or travertine, with a choice of two stones for bathrooms and powder rooms. The ultimate finish to the neutral, organic interior palette includes touches of brass, travertine, Venetian plaster, fluting, bronze and concrete ceilings in penthouses.

Construction begins in Q1 2023 with a proposed completion date of Q1 2025.

Visit: www.Odedoublebay.com.au

The AFR has revealed where Australia’s wealthiest reside. The newspaper names the top suburb where the average taxable income was $325,343 in 2019-20 when the Australian Tax Office mined its data on us.

And the best income-earning suburb is Peppermint Grove/Cottesloe in Perth!

Of course, this has always been a suburb for rich listers and up-and-coming WA’ers. Peppermint Grove/Cottesloe really came into focus when the likes of Alan Bond and the star entrepreneurs of the WA Inc rorts affair became national celebrities, ultimately for the wrong reasons.

Wikipedia tells us that: “Peppermint Grove is an affluent western suburb of Perth, Western Australia on the north bank of the Swan River at Freshwater Bay. Its local government area, the smallest in the country, is the Shire of Peppermint Grove. The suburb was named after its trademark Swan River peppermint trees lining many streets.”

To local Perth residents, this tiny suburb is tagged “millionaire’s row”, but the actual average income (i.e. taxable income) is $325,343. In 2018-19, it was $179,376 and the suburb was in sixth spot.

If you want to see how your suburb rates, check out the AFR’s tables. For Sydney, the top addresses are Darling Point, Edgecliff, Point Piper which all come under the postcode 2027, coming in at the Number 2 wealthiest suburbs in the country.

The third wealthiest was Bellevue Hill (postcode 2023), followed by postcode 2030, which houses Dover Heights, Watsons Bay and Vaucluse. Sixth on the cards was Mosman/Split Junction, while seventh went to Hunters Hill/Woolwich.

Woollahra came in at Number 8, then Northbridge. Double Bay, which was Number 1 in 2018-19, took 10^th position.

The top Melbourne postcodes were 3142 in at Number 5, which has Toorak and Hawksburn.

While these stories are interesting, I like to ponder what these observations teach us.

Try these:

• All these suburbs are great places to live.
• Peppermint Grove/Cottesloe might be the top income suburb nowadays but Sydney is the Big Apple for those on high incomes, holding eight of the top 10 postcodes.
• These suburbs tend to be populated by white-collar workers.
• There was only one change to the list looking at 2018-19 compared to 2019-20, with Victoria’s Portsea dropping out to be replaced by Hunters Hill/Woolwich.
• The average taxable income of residents in these postcodes ranged from $202,598 to $168,891 in 2018-19, which then became $325,343 to $170,051.
• Taking out Peppermint Grove/Cottesloe, which jumped from $179,376 to $325,343, average incomes grew modestly.

So what explains such a big jump in the average taxable income for this top Perth postcode? Mining booms are always great for WA, pumping up the state’s riches. The kinds of people who live in this Perth suburb (i.e. entrepreneurs, investment bankers and other executives of corporations) would’ve been beneficiaries of the boom.

The stock market was no great help because the Coronavirus crash took away the gains that were building up in 2019 until share prices plummeted in March 2020.

What about house prices? Well, they fell and then recovered strongly, but these don’t actually help income unless the residents sell the properties or rent them out.

So we can rule out the stock market and property prices as the big reason for such a spike in income in Perth’s top suburb.

So what was the big change over 2019-20 compared to 2018-19? Well, it would have to be the lockout WA imposed that kept others out and WA’ers in. The McGowan Government boasted about its economy and its lockdown in March this year with this press release:

• Latest Australian Bureau of Statistics data shows Western Australia has had the strongest economy in the country throughout the pandemic;
• State Final Demand in 2021 was 7.2 per cent higher than in 2019, defying the impacts of COVID;
• State Final Demand up by 6.6 per cent in 2021;
• Western Australia's strong management of the pandemic has kept the economy open and growing over the past two years.

The state’s Premier Mark McGowan really crowed about the pluses of his lockout: “Western Australia's State Final Demand growing by 7.2 per cent over the past two years is a remarkable achievement - something nobody would have thought possible throughout a global pandemic,” he said. “My Government has provided almost $1.7 billion of business assistance over the past two years - and we will continue to provide necessary support where required as we move into this next phase of the pandemic.”

It looks like the rich people of Peppermint Grove/Cottesloe were huge winners over what was a very strained time for most Australians trying to earn income over 2019-20.

That’s a PhD paper waiting to be written by some young smart economist, with a title like: How lockouts work better than lockdowns!

The 2021 Census has shone the light on housing in this country and there are many problems, with some international experts again warning that our home price bubble is about to burst. However, the ABS statistic that surprised many has been that we have about 1 million unoccupied homes. This looks worrying given the fact we have a housing affordability crisis, which we hear about all the time.

Let’s run through the big numbers out of this Census night snapshot of our housing sector and try to work out what’s wrong and how it can be fixed. PM Albanese has already come out and said he wants to fix our housing problems, so what needs fixing most?

We have close to 11 million residential properties and on Census night about 10% had no one in them. That seems huge but the Census was done on a lockdown night when family members or Airbnb temporary tenants couldn’t go to a lot of their holiday homes that would’ve made up that number.

Of course, the tax system makes being a landlord and owning more than one property lucrative to some, which is what Albo could change over time, though he knows when Bill Shorten tried to do this he lost that election in 2019 to Scott Morrison. By the way, after that, a housing boom took off with Sydney prices spiking 55% in three years!

On the subject of home ownership, 66% of homes nationally were owned outright or with a mortgage. I always thought that on an international scale we were a big owner of homes but the numbers tell a different story. This current ownership figure wasn’t very different to the one we saw in the 1996 Census, but a comparative look at the numbers around the world shows an amazing similarity when it comes to owning bricks and mortar. In the US, it’s 65%, UK 63% and France 64%. Interestingly, Italy has 73% home ownership and Spain 75%. This shows something about the Latins that suggests inter-family ownership within an extended family plays a role in those countries.

In Germany, only about 45% of households own their main residence but this is a country that reunited and the people of East Germany basically came out of Communist government-owned flats.

So it seems that if we have a home ownership problem, so do a lot of countries we compare ourselves to. The really worrying issue might be the mortgage stress indicators that the Census had underlined.

The SMH’s Matt Wade reported that “one in five Sydney home borrowers had repayments that exceed 30% of household income, compared to about one in 12 borrowers in 2016”.

This is a huge jump as an indicator of mortgage stress and it comes as the number of households with a mortgage has gone from roughly 25% in 1996 to 35% in the 2021 census. “There’s more than twice the proportion in mortgage or rental stress than we had five years ago,” social researcher Mark McCrindle told The SMH.

And the stress isn’t just for homeowners. Renters too are feeling the heat of a lack of properties. Research from the Everybody’s Home campaign showed that “the average 18-year-old retail worker in every capital city spent way above 30 per cent of their income on renting just that one room — a figure most experts say indicates rental stress.” (news.com.au)

All this housing pressure comes as Bloomberg Economics analysis “shows that 19 OECD countries have combined price-to-rent and home price-to-income ratios that are higher today than they were ahead of the 2008 financial crisis” — an indication that prices have moved out of line with fundamentals. And Australia was identified as “one country facing some of the biggest challenges, sitting as the fourth most risky property market in the developed world,” according to News’s Rohan Smith. "Only New Zealand, the Czech Republic and Hungary were found to have housing markets that were at a higher risk of imploding”.

Given the PM’s upbringing in a housing commission property in a battling inner-Sydney suburb, he’s someone who should have the guts to get affordable properties built in suburbs and towns where people want to live.

In April this year, Albo talked about a “full employment summit” but with unemployment at 3.9%, he should be organizing a housing summit, getting together with some of our biggest builders like Meriton’s Harry Triguboff and Melbourne’s Tim Gurner, to see what can be done to get properties built as cheaply as possible and as soon as possible.

And it is down to state governments across the country, with some calculations saying that to get a new property built, there’s about 30% of the total cost going to governments in taxes, fees and charges!

Something needs to change to fix this housing crisis. Strong leadership will have to force changes that will see more affordable properties being built. As I’ve said above: in suburbs and towns where people want to live.

Governments in the past have put all this in the too-hard basket. It’s time grown-ups fix this problem.

Questions from friends and family are always early indicators of where markets are going, with the number one inquiry I’m getting right now being: “Do you reckon your mate Chris Joye is right about a 30% crash in home prices?” Of course, that’s followed up with: “How low can the stock market go?”

But we Aussies care more about house prices than share prices and our super. That has to change over time and it will, as more and more of us find it hard to buy a property, though for the year or so ahead, real estate will be a buyers’ market at last.

That said, I doubt if everyone can really think that the property they missed out on buying that sold for a million bucks last year will be $700,000 this year. Even though Chris Joye is smart, his 30% number is a guess driven by a pretty smart model of Australian property prices.

However, his model can look wrong if things change unexpectedly from the time when Chris’s team whacked data into it. For example, they might have factored in more interest rate rises than actually happen. Or the oil price might fall quicker than expected. Or China might get past its lockdown problems faster than expected. If these things happen, the supply chain problems pushing up inflation could be reversed, bringing inflation down faster than anticipated.

It's guesswork for Chris and me but ANZ’s property team which has a property price model too has a 20% fall in prices pencilled in. But again, they’re also guessing.

Also, a 30% fall nationally might mean some places see prices fall by 40%, while others only 15% because property markets aren’t the same across the county.

The SMH showed us today that the RBA’s scare campaign to stop us from spending and paying too high prices, which is fuelling inflation, is working by telling us that 30% of homes were withdrawn from auction last week in Sydney!

Why? They’re scared no one will show up and they’ll have to drastically chop the price of their home. While they will have to cut it, the old price they had in their head was inflated anyway by the unbelievable surge in what people paid for Sydney real estate in particular.

In case you need reminding, “Sydney’s median house price has lifted 55% in less than three years to $1.6 million. The median climbed almost $570,000 since the 2019 market low,” Domain.com.au data shows.

And while a 30% withdrawal of properties in one week seems like a big number, it’s early days. This is an overreaction to headlines such as ‘30% fall in house prices’ and talk of ‘another 0.5% interest rate rise from the RBA next week’.

Someone not in the “house prices will fall by 30%” scare team is property expert Louis Christopher, founder of SQM Research.

“There is still interest in selling via auction by vendors … [but] that interest in time may wane,” he said. “What you see in downturns is that vendors tend to pivot towards selling by private treaty. There is a perception that auctions do not work as well for vendors during downturns.”

The SMH cited a semi in Clovelly that sold for $3.04 million, which was $40,000 over the reserve. Selling has become harder than auctions over the past three years but that doesn’t mean it’s going to be Armageddon for everyone hoping to sell.

Buyers dodging an auction right now makes sense but if a lot of properties are withdrawn in coming months, those who brave it and try to sell might get a pleasant surprise, if they have a very attractive property.

And by the way, it’s not all bad news, with CoreLogic reporting Sydney’s clearance rate was actually up last week to 55.4% and for Melbourne (while seeing sales listings pulled down by 22.3%) the clearance rate was still a healthy 60%. Adelaide had 173 auction listings and scored the highest clearance rate of 68.8%, followed by Brisbane at 65.4% and Canberra at 62%.

The important point made from this SMH report came from Louis Christopher who said that the latest auction results showed the market was experiencing an “ongoing downturn, not an outright crash”.

The data coming out of property probably should get worse before it gets better, especially with the negative headlines I expect after next week’s rate rise from the RBA tipped to be 0.5% again. But if inflation readings over the next two months start to point to fewer interest rate rises than have been predicted, all of a sudden, buyer interest in properties will pick up and price falls in 2022 mightn’t be as scary as they currently sound.

I’ll be watching every local and foreign indicator that might influence the future of inflation and what that means for interest rates. As soon as I know, I’ll pass it on to you.

So watch this space if you’re panicking about house price falls, stock price slumps and interest rate rises.

The Prime Minister is betting the house on a super play to win over young voters by allowing them to take $50,000 out of their super to buy their first home. It’s a politically smart move but it has been bagged by the super industry and the guy who created compulsory super — former Treasurer and PM, Paul Keating.

Not known for his subtlety with words, PJK called it a “frontal assault” on super, linking it to his belief that the Liberals “hate the superannuation system”.

He thinks the Coalition likes to keep ordinary Australians poor and on the pension, which shows you how good he is at politics, but the reality is the Libs are more afraid of the power of the industry super funds sector that now have become a real force in the economy.

Armed with the incrementally small amount of super from millions of workers, these funds are now building some of the huge office towers and apartment blocks in our nation’s capitals, buying Sydney Airport, voting at annual general meetings against banks that lend to coal companies and advancing the goals of climate change activists, while doing a pretty good job in generating good returns for their members.

They are powerful and they are pro-Labor, as they came out of the union movement. In reality, the Coalition would prefer a super industry more dominated by financial institutions, which are more on their political wavelength.

So there is a political reason for ScoMo and the Coalition not being too fussed to promote super at the expense of Aussies getting into property.

And then there is the other political reason that Aussies also love property more than super. And there is a reasonable argument that because compulsory super is now taking 10% of a young person’s wage, it’s a lot harder for them to buy a home than it was for baby boomers, many of whom had no super until 1992 when Paul Keating made it compulsory at 3% of their wage.

And then there is the economic/investing argument that property can be a better investment than super for some who buy in the right area, where prices go ballistic. Also, you’re taxed 15% of super until retirement, but a person’s principal property is capital gains tax-free when you sell it, and you can sell it at any time and access your money, unlike super.

Your super in retirement is tax-free but retirement years are being pushed up, so you can see why many Aussies prefer property over super.

As a financial planner, I like both. Seeing a client with a growing property and super portfolio makes me suspect that they’re heading in the right direction for a materially satisfying retirement. But younger people feel blocked from getting on the property ladder by the high price of homes and the subsequent difficulty of getting a deposit, coupled with the fact they lose 10% of their wage to super.

So there’s both political and economic merit in ScoMo’s plan but it will reduce someone’s super and it will mean they’ll probably have to downsize and sell their principal property when they retire and their super balance is too low.

The Super Home Buyer Scheme would start by July 2023 and would not be restricted by price caps on the income someone could earn or the value of the property they wish to buy. Each super member could access $50,000 and it will put more people into the property market, which will not only improve the number of buyers, it will push prices up.

The SMH reported that the Industry Super Australia chief executive Bernie Dean estimated the use of super savings would drive up property prices by 16% in Sydney, 9% in Melbourne, 8% in Brisbane and 14% in Perth. How he worked that out, I suspect, is based on a few assumptions and guesswork, but his overall argument has merit.

These super homebuyers will have to save up to 5% for a deposit before accessing the super money and will be able to use up to 40% of their super savings in their funds.

The SMH says: “It would be able to be used alongside the Home Guarantee Scheme and the First Home Super Saver Scheme as well as a policy also unveiled yesterday to allow all Australians over the age of 55 to 'downsize' their homes and put up to $300,000 from the proceeds, per person, into super funds outside existing contribution caps."

This actually would allow older Australians with crappy super balances to sell their home, buy something cheaper and a couple could slam $600,000 into super in one go!

This is a sensible political play with some conflicting implications, both positive and negative, but after one million people have already voted, isn’t this good election idea a tad too late?

I guess we’ll find out on Saturday.

Under would-be PM Anthony Albanese, Labor will cash in on the great Australian dream by becoming a part-owner of 10,000 new homes a year, which they will share with first homebuyers. This is an ‘outside the square’ idea for a sector under-supplied with properties, but the question voters have to ask is this: is it the right policy idea?

Let’s look at the nuts and bolts of Labor’s equity-sharing initiative that’s called the Help to Buy program. So here goes:

1. 10,000 households will be able to access the help.

2. It’s for first homebuyers or anyone who lost a home because of, say, a divorce.

3. It’s for those with a taxable income of $90,000 for a single and $120,000 for a couple.

4. The Government would stump up 40% of the price of a new home and up to 30% of an existing home.

5. There will be caps per city and region, with the Sydney and regions’ cap being $950,000.

6. This would save a new homebuyer $380,000 and $285,000 on an existing home.

7. The purchaser will not have to pay lenders mortgage insurance.

8. Over time, the buyer can buy the Government out of the deal and it will recoup its money plus the capital gain when the property is sold.

Here’s the range of caps for around the country:

So is this idea a good one?

I’ve always argued that the supply of property is the problem explaining why our home prices have risen by so much. This lack of supply goes back to excessively controlling councils and too many taxes on developers who take the risk to buy land, build properties and hopefully sell them before a recession sends them broke.

Taxes from all levels of government can be up to 30% of the cost of a new property, so this policy doesn’t address that big supply issue.

It does reduce the effective price of a home for a new homebuyer, which is good but it should’ve been exclusively for new builds, to assist construction and job creation as well.

One aspect of the idea that is laudable was underlined by economist Saul Eslake.  “It doesn’t involve putting people in the perilous position of buying a property on wafer-thin margins of equity at the bottom of the interest rate cycle and at what could be the peak of the property price cycle, hence increasing the risk of them finding themselves in a ‘negative equity’ position at some stage” he told the SMH.

One problem I have is this: what happens if a big recession hits and people stop paying their mortgages? Could this become a home loan nightmare for the Government and the lenders?

Fortunately, the Government does have deep pockets with a lot of taxpayer money in them to deal with any potential problems down the track.

Verdict? It’s an OK idea and 10,000 people a year will like it for as long as it lasts, but lowering taxes for developers to bring prices down for more than 10,000 properties might have been better option. But that would’ve cost a lot more money to pull off.

Timing and context is really important when assessing policies such as the First Home Loan Deposit Scheme, which copped a bagging by Peter Van Onselen in The Australian yesterday. Pete and I go back years, both working at Sky News and he’s a really smart guy — a Professor of politics and public policy at the Uni of WA.

He's also not a great fan of Scott Morrison as regular readers and viewers of his work on TEN might have noticed.

In a nutshell, this is why he thinks the latest version of this scheme to get first homebuyers into a house on the cheap is bad policy, which he lambasts Labor for supporting.

This is why he hates the policy:

• It distorts who the market says should be an owner of a house;
• Some borrowers could get a loan with a 2% deposit;
• The Royal Commission on banking told banks to lift lending standards, which this scheme ignores;
• The size of loans has been pumped up as a pre-election play, as in Sydney the maximum loan goes from $800,000 to $900,000;
• It’s letting young people borrow when interest rates are set to rise pretty aggressively, in coming years;
• And this will happen as house prices are set to fall in coming years;
• This will lead to many overborrowed young people with negative equity, where what they’ve borrowed, say $500,000, will be up against a home that was bought for $510,000, which now could only be sold for $450,000!
• This problem will also come back on the taxpayer because the government guarantees the loan if there are costs linked to a default.

All of this is bound to create mortgage stress and it’s a policy that Peter thinks should be pulled back, not pumped up for political purposes.

This is a pretty impressive list of reasons why the scheme should be canned or pulled back rather than ramped up but some context needs to be understood about this scheme.

It actually kicked off in January 2020, before the Coronavirus lockdown and stock market crash of February/March 2020 and 2019 was not a great year for real estate, after Bill Shorten threatened changes to negative gearing and the capital gain discount.

This was the headline of a story on livewiremarkets.com by Angela Ashton: 'Sydney & Melbourne house prices lead the race downwards in 2019.'

This was not a boom time for property, as Ashton’s next observation points out: “At this point, we continue to reiterate that we are not anticipating an economy-wide collapse in house prices, which would likely require an increase in unemployment and lending rates. In fact, boosted sentiment from the surprise federal election result and recent changes to monetary policy and other settings have placed a firm floor under the housing market.”

And this chart below shows it graphically.

Then along came the pandemic and the threat of a Great Depression and government policy went into “do anything” mode to keep people in jobs. So this policy promised jobs, homes and turning tenants into homeowners — what was not to like about that at the time?

The policy has always rested on the banks lending sensibly, and there is a buffer supposedly on all loans, which estimates if a borrower could stand a 3% rise in interest rates.

On the taxpayer issue of having to bail out borrowers under the scheme, well taxpayers receive a lot of money from homebuyers with stamp duty and via taxes on developers. And the economy does benefit from the jobs created via a healthy building and construction sector.

At the time this policy had more merit, as it stopped a lot of young borrowers from having to pay mortgage insurance that has been a very expensive slug in the past. However, with interest rates set to rise and prices set to fall from historically high levels, putting this policy on steroids is more explainable in terms of the upcoming election, rather than it being an economic necessity.

If the young are kept out of the housing market for a couple of years, they will undoubtedly be buying at lower prices, albeit with higher interest rates, but at least there is less likelihood of the mortgage stress of rising repayments as house prices fall and negative equity becomes a concern.

Of course, lots of us have lived through these challenges — those who borrowed in the 1980s and saw interest rates hit 18% will attest to this — and our homes have become more valuable. However, it’s not an ideal policy given what lies ahead. But that's politics.

Property investors have been making a comeback to the housing market over the past year and the spike in rents is bound to keep this trend on the rise. Domain.com.au reports that Sydney renters have seen a $50-a-week rise in what they pay to rent, but believe it or not, there are capital cities in Australia that are actually dearer!

The median rent in Sydney is now $600 a week. This has risen 9.1% in Greater Sydney over the past 12 months, but you’d pay $610 in Darwin and a whopping $700 a week in the nation’s capital, Canberra!

This is a staggering change for the rental market when the pandemic meant tourists and overseas students were locked out of Australia.

Inner-city apartment values tumbled and at the time I kept asking property experts on my YouTube TV program if this had created a big buying opportunity. The answers I received were cautious because of the question marks about how long the pandemic would persist, but they all expected a price comeback as normalcy returned.

Ironically, tourists and students are back but not to the same extent as they were pre-pandemic, so this spike in rents is arguably only the start to something that could get more serious in coming years unless the supply of rental properties increases ASAP.

Adding to the problem is that with the lower rents linked to the pandemic lockdown, many landlords cashed in on the hot property price market and sold out, effectively reducing the stock of real estate available for rent.

Another threat to permanent rental properties is the impact of Airbnb. A Forbes report on Airbnb in the US, found: “The influence of the so-called ‘Airbnb effect’ on local housing markets has grown into a significant cause for concern, particularly when looking at its impacts on housing stock, prices and communities.”

The Economic Policy Institute (EPI), a non-profit, non-partisan American think tank, found that the economic costs of Airbnb likely outweigh the benefits: "While the introduction and expansion of Airbnb into cities around the world carries large potential economic benefits and costs, the costs to renters and local jurisdictions likely exceed the benefits to travellers and property owners."

And the Forbes story made scary reading for tenants in popular tourist cities and towns of Australia. “Cities, popular ones especially, seem to fare the worst. In major cities such as Amsterdam, Barcelona, Edinburgh, and Los Angeles, studies on the ‘Airbnb effect’ have found that over-tourism facilitated by platforms such as Airbnb negatively impacts on house prices and communities,” the EPI report revealed.

This view was supported by a Harvard Business Review across the US, which “found that Airbnb is having a detrimental impact on housing stock as it encourages landlords to move their properties out of the long-term rental and for-sale markets and into the short-term rental market".

And the numbers guys found a direct link between short-term stay businesses growing and higher rents. “A separate U.S. study found that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices. It might not seem like much on the surface but there’s a cost creep for those looking to rent long-term or buy,” the Forbes story revealed.

Until federal, state and local councils make a concerted effort to bolster the stock of housing, rental problems will persist, especially when tourism gets back to normal.

But there are two possible positives out there. The first is that big construction companies like Mirvac are spearheading a trend to build apartments specifically for renting. And second, a guy I know who owns an education facility for overseas students recently told me he expects his ‘physical’ student numbers to be down 50% going forward, with the other 50% taking his courses online. Obviously, this lowers the pressure on accommodation for overseas students.

The one unquestioned fear most parents might have is about how their kids will ever be able to afford to buy a home and live near their family. And Domain’s annual First Home Buyer report actually shows how many months a couple needs to save up for a deposit to buy an entry-level property within our capital cities.

It's not great reading for young couples and makes it essential that they learn to use their super to make it happen quicker. And if the polls are right, then future Labor Ministers — Jason Clare on housing, Matt Thistlethwaite on super and would-be Treasurer Jim Chalmers (with whom I had lunch yesterday at an ACCI/Business Sydney event) really need to think outside the square to help Aussies access their bricks and mortar dream.

The numbers above on the months of saving that a couple needs to put in show the problem in stark reality.

For a couple to save to live in the Warringah area in Sydney, we’re talking 241 months of saving; Glen Eira in Victoria, 161 months; and Coolangatta in Queensland, 116 months of saving.

For Sydney’s East, forget it, where it takes 116 months for a home unit or 9.66 years, and for a house 28.75 years! Did I say forget it, unless you come from a rich family, you work for an investment bank, you start a tech company or have a great credit rating at the bank of mum and dad.

The reason I wanted to do this story was that I assumed that the method used to work out how long it takes to save for a home actually makes the story even scarier than it has to be. And I was right in assuming that the report was based on what most couples do to save the deposit, which is what has to change.

The report is findable here and outlines the method for arriving at these numbers: “The time required to save a deposit is based on a dual income, with each person saving 20 per cent of post-tax income on a monthly basis that is deposited in a standard online savings account (interest earned is taxed at the individuals’ tax rate). 

But if a couple accesses help from the Federal government, then these numbers can be substantially reduced.

First, there is the First Home Loan Deposit Scheme (FHLDS), which allows a first-home buyer to secure a home loan with as little as a 5% deposit, without incurring the added cost of mortgage lender’s insurance. The impact of this was explained by the report: “Utilising this scheme supercharges the speed to market, reducing the savings time to less than two years for an entry-priced house across all capital cities, with Perth recording the quickest time to save at only 10 months.”

Second, the First Home Super Saver Scheme (FHSSS) allows individuals to save $30,000 under the scheme, or $60,000 for a couple (this is set to increase in the next financial year). This scheme doesn’t allow couples to access their compulsory 10% super payments but if they use salary sacrifice, they can save up to $27,500 minus their boss’s compulsory super payment.

So if the boss puts $10,000 into super, an individual could throw in $17,500 a year, which could be withdrawn for a deposit. This would have the dual benefits of a 15% tax on that income and it would grow faster, as super returns are generally better than bank deposits.

“On average across the cities, 2 years and 10 months were shaved from a house deposit saving time, and 2 years and 9 months for units,” the report revealed.

Both these schemes (i.e the First Home Loan Deposit Scheme and the First Home Super Saver Scheme) reduce the saving time by just under five years or 60 months.

Future governments need to increase the supply of affordable housing, reduce the taxes on developers actually building homes and allow greater access to super to help reduce the time it takes a young couple to get the deposit together for a home.

Rules could be applied e.g. if the house is sold and no new one is bought, the money that left super to bankroll the deposit should be recontributed into super.

The question is: could a Labor government talk their friends at industry super funds (which were a smart product of the union movement) to part with money from members of the funds to help those members buy a home?

Of course, if ScoMo shocks us again and wins in May, his team needs to not only get more homes built over the next three years, they also need to improve their saving schemes to reduce the years needed to get a young couple into a home ASAP.

And young people need to be more interested in money such that they access and use these saving schemes. I bet a hell of a lot of young people don’t know about and/or use these schemes.

The money education process of all Aussies needs to be lifted.