I keep reading about our “affordability crisis” and wonder whether I’ve teleported into a parallel universe.
The one I live in doesn’t have a crisis in affordability. The latest data suggests that affordability is at its most attractive level in 10 years. A combination of lower prices, cheaper loans and higher incomes has put homes without reach of more people.
Various sources, including the RBA, keep telling us the relativity between prices and household incomes has changed very little in the past 10 years – some say in the last 20 years.
Rather than an affordability crisis, we have an analysis crisis. The information channels are cluttered up with individuals and organisations running political campaigns or pushing vested interests, aware that the claim of a “crisis” will always gain an easy passage through to publication.
For some, the existence of a crisis is a given. They bypass consideration of whether this is real or unreal and proceed directly to finding solutions.
If you set out with a mission based on a fallacy, there’s a good chance the solutions you come up with be equally erroneous.
And so it is with the possibly well-intentioned but seriously misguided souls who devote much of their energy to solving a non-existent problem.
The “solutions” offered by Australians for Affordable Housing and others are all measures that would create of new raft of problems without solving any of the existing ones.
These include eliminating government grants to first-home buyers and so-called “tax breaks” to property investors.
The first assumes government leg-ups to first-time buyers inflate prices, while the other is based on the assumption that investors are responsible for prices rising.
Both are furphies, unsupported by any research evidence. (There are other fictional causes of rising prices, like the mythical shortage of new homes).
The reality is that prices tend to rise when buyers are competing to secure property. The biggest force in real estate in that regard is the one group that never gets mentioned in the debate about why prices rise: home buyers other than first-home buyers.
First-home buyers are not a major force in pushing prices. They’re a small part of the overall market. Even at their peak – in 2009, when low prices and very low interest rates inspired many to get into the market – first-time buyers comprised only a quarter of the market.
Ditto property investors, which are generally a minority element in property markets. But they’re a popular choice as culprits, given that only “greedy” people seek to buy property beyond the family home. Some reports have added extra emotion to the furphy by calling investors “speculators”, which most investors are not.
Investors, like first-home buyers, are a market minority. The other thing these two categories have in common is this: they’re the least likely to pay an over-the-top price. Investors don’t come at real estate emotionally, the way home buyers do, and they don’t have a strong motivation to get property at the lowest possible price. If you can’t get it at a price that stacks up, you move on.
First-home buyers bring emotion to the table but not capacity. They are constrained by financial reality in terms of how much they can pay.
The one buyer category with the financial capacity, motivation and collective force to influence prices are home buyers other than first-home buyers – i.e. trade-up buyers.
At any point in time, they comprise the bulk of the market. They don’t receive government grants and they don’t get any tax benefits. But, when they’re out in force, the competition they create generates price growth.
So eliminating negative gearing won’t make homes cheaper. Nor will cutting grants to first-home buyers. Both will create new problems (like pushing up residential rents) without fixing the existing one, assuming you believe the problem exists.
The huge weakness in the argument of those who perceive a crisis is that they want to hurt the majority to help a very small minority.
Around 70% of households are owners. Of the remainder, some are renters by choice. Others are renters who want to become owners and one day will be successful. There remains a small section who aspire to be home owners but will never be able to achieve it (the reasons for which are many and varied).
Some campaigners would like to see measures to erode property values to assist this group, something that will never happen because no politician will facilitate the deflation of what is the biggest asset of most households and the basis of their financial future.
It would simply be against the national interest to do so.
The people who see a “crisis” need to get back to the drawing board. But, please, do some research first, rather than wasting everyone’s time by bringing emotionally charged furphies to the national debate.